Item 1A. Risk Factors
RISK FACTORS
Item 1. Legal Proceedings
From time to time, we may become involved in various lawsuits
and legal proceedings which arise in the ordinary course of business. The impact and outcome of litigation, if any, is subject
to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.
We are not currently a party to any proceedings the adverse outcome of which, individually or in the aggregate, would have a material
adverse effect on our financial position or results of operations.
Item 1A. Risk Factors
RISK FACTORS
Investment in our common stock involves a high degree of
risk. You should carefully consider the following risk factors before making an investment decision. If any of the following risks
and uncertainties actually occurs, our business, financial condition, and results of operations could be negatively impacted and
you could lose all or part of your investment.
Risks Related to our Business
We have incurred significant losses since inception. We
expect to continue to incur losses for the foreseeable future as we pursue our operations as a combined enterprise, and we may
never generate revenue or achieve or maintain profitability.
We have incurred losses in each year since our inception and
we expect that losses will continue to be incurred in the foreseeable future in the operation of our business. To date, we have
financed our operations entirely through equity and debt investments by founders, other investors and third parties, and we expect
to continue to rely on these sources of funding, to the extent available in the foreseeable future. Losses from operations have
resulted principally from costs incurred in research and development programs and from general and administrative expenses, including
significant costs associated with establishing and maintaining intellectual property rights, significant legal and accounting costs
pertaining to the closing of the Merger and related regulatory filings, and personnel expenses. We have devoted substantially all
of our time, money and efforts to date to the advancement of our technology and raising capital to support our business, and expect
to continue to devote significant time, money and efforts to such activities going forward.
We expect to continue to incur significant expenses and we anticipate
that those expenses and losses may increase in the foreseeable future as we seek to:
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develop our principal product candidate, AC5, including further development of the product’s composition and conducting preclinical biocompatibility studies;
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raise capital needed to fund our operations;
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build and enhance investor relations and corporate communications capabilities;
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conduct clinical trials relating to AC5 and any other product candidate we seek to develop;
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attempt to gain regulatory approvals for any product candidate that successfully completes clinical trials;
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establish relationships with contract manufacturing partners, and invest in product and process development through such partners;
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maintain, expand and protect our intellectual property portfolio;
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advance additional candidates through our research and development pipeline;
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seek to commercialize selected product candidates for which we may obtain regulatory approval;
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hire additional regulatory, clinical, quality control, scientific, financial, and management consultants and personnel; and
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support and add operational, financial, accounting, facilities engineering and information systems consultants and personnel to further our operations.
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To become and remain profitable, we must succeed in developing
and eventually commercializing product candidates with significant market potential. This will require us to be successful in a
number of challenging activities, including successfully completing preclinical testing and clinical trials of product candidates,
obtaining regulatory approval for our product candidates and manufacturing, marketing and selling any products for which we may
obtain regulatory approval. We are only in the preliminary stages of the earliest of those activities. We may never succeed in
those activities and may never generate operating revenues or achieve profitability. Even if we do generate operating revenues
sufficient to achieve profitability, we may not be able to sustain or increase profitability. Our failure to generate operating
revenues or become and remain profitable would impair our ability to raise capital, expand our business or continue our operations,
all of which would depress the price of our common stock. A decline in the prices of our common stock could cause our stockholders
to lose all or a part of their investment in the Company.
There is substantial doubt about our ability to continue
as a going concern.
We have not generated any revenue from operations since inception,
and we have incurred substantial net losses to date. Further, our operating expenses will likely increase in the foreseeable future,
as we seek to increase operations as a life sciences medical device company. Moreover, our cash position is vastly inadequate to
support our business plans and substantial additional funding will be needed in order to pursue those plans, which include research
and development of our primary product candidate, seeking regulatory approval for that product candidate, and pursuing its commercialization
in the U.S., Europe and other markets. Those circumstances raise substantial doubt about our ability to continue as a going concern.
We will need substantial additional funding and may be
unable to raise capital when needed, which would force us to delay, reduce or eliminate our product development programs or commercialization
efforts and could cause our business to fail.
We are a development stage company with no commercial products.
Our primary product candidate is in the process of being developed, and will require significant additional clinical development
and additional investment before it could potentially be commercialized. We anticipate that none of our product candidates will
be commercially available for several years, if at all.
We believe that our current cash and cash equivalents on -hand
will be sufficient to meet our anticipated cash requirements through October 2014; however, based on our current operating expenses
and working capital requirements, we do not currently believe our existing cash resources are sufficient to meet our anticipated
needs for the next twelve months. In addition to the funds raised from our equity financings and debt financings, we will require
additional financing to fund our planned future operations, including the continuation of our ongoing research and development
efforts, seeking to license or acquire new assets, and researching and developing any potential patents, the related compounds
and any further intellectual property that we may acquire. In addition, our plans may change and/or we may use our capital resources
more rapidly than we currently anticipate. We presently expect that our expenses will increase in connection with our ongoing activities,
particularly as we commence preclinical and clinical development for our lead product candidate, AC5, and that we will need to
raise significant additional funds to continue operations. Our future capital requirements will depend on many factors, including:
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the scope, progress and results of our research and preclinical development activities;
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the scope, progress, results, costs, timing and outcomes of any clinical trials conducted for any of our product candidates;
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the timing of entering into, and the terms of, any collaboration agreements with third parties relating to any of our product candidates;
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the timing of and the costs involved in obtaining regulatory approvals for our product candidates;
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the costs of operating, expanding and enhancing our operations to support our clinical activities and, if our product candidates are approved, commercialization activities;
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the costs of maintaining, expanding and protecting our intellectual property portfolio, including potential litigation costs and liabilities;
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the costs associated with maintaining and expanding our product pipeline;
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the costs associated with expanding our geographic focus;
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operating revenues, if any, received from sales of our product candidates, if any are approved by the U.S. Food and Drug Administration (“FDA”) or other applicable regulatory agencies;
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the cost associated with being a public company, including obligations to regulatory agencies, investor relations, and corporate communications;
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the costs of additional general and administrative personnel, including accounting and finance, legal and human resources employees; and
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operating revenues, if any, received from sales of our product candidates, if any are approved by the FDA or other applicable regulatory agencies.
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As a result of these and other factors, we expect that we will
need substantial additional funding in the future. We would likely seek such funding through public or private securities offerings,
incurrence of indebtedness, or some combination of those sources. We may also seek funding through collaborative arrangements if
we determine them to be necessary or appropriate, although these arrangements could require us to relinquish rights to our technology
or product candidates and could result in our receipt of only a portion of any revenues associated with the partnered product.
Additional funding may not be available from any of these sources when needed on acceptable terms, or at all. In addition, we are
bound by certain terms and obligations that may limit or otherwise impact our ability to raise additional funding in the near-term,
including restrictions in our loan agreement on our ability to incur certain types of additional indebtedness and certain terms
of our recent equity financings, each discussed in further detail in the risk factors below. These restrictions and provisions
could make it more challenging for us to raise capital through the incurrence of additional debt or through future equity issuances.
Further, if we do raise capital through the sale of equity, or securities convertible into equity, the ownership of our then existing
stockholders would be diluted, which dilution could be significant depending on the price at which we may be able to sell our securities.
Also, if we raise additional capital through the incurrence of indebtedness, we may become subject to additional covenants restricting
our business activities, and the holders of debt instruments may have rights and privileges senior to those of our equity investors.
In addition, servicing the interest and principal repayment obligations under debt facilities could divert funds that would otherwise
be available to support research and development, clinical or commercialization activities.
If we are unable to obtain adequate financing on a timely basis
or on acceptable terms in the future, we would likely be required to delay, reduce or eliminate one or more of our product development
activities, which could cause our business to fail.
The terms of the Private Placement Financing could impose
additional challenges on our ability to raise funding in the future.
On January 30, 2014, we entered into a securities purchase
agreement (the “Securities Purchase Agreement”) with nine separate accredited investors providing for our issuance
and sale, in a private placement, of an aggregate of 11,400,000 shares of our common stock at a purchase price of $0.25 per share
and three series of warrants, the Series A warrants, the Series B warrants and the Series C warrants, to purchase up to an aggregate
of 34,200,000 shares of our common stock (collectively, the “Warrants”), for aggregate gross proceeds to us of approximately
$2.85 million (the “Private Placement Financing”).
The Securities Purchase Agreement related to the Private Placement
Financing imposes certain restrictions on our ability to issue equity or debt securities, including the following: during the period
commencing on January 30, 2014 and ending on the 90-day anniversary of the first date on which all the Registrable Securities (as
defined in the Securities Purchase Agreement) are covered by one or more effective registration statements, we may not offer, sell
or issue any securities, except for equity awards granted to service providers and securities issued in connection with certain
types of strategic transactions; during the period commencing on January 30, 2014 and ending on the six-month anniversary of the
first date on which all the Registrable Securities (as defined in the Securities Purchase Agreement) are covered by one or more
effective registration statements, such investors shall have certain notice and participation rights with respect to offers and
sales of securities that we may pursue; and until the earlier of the 12-month anniversary of the first date on which all the Registrable
Securities (as defined in the Securities Purchase Agreement) are covered by one or more effective registration statements and the
date on which all such Registrable Securities have sold, we may not effect or enter into an agreement for a VRT, where a “VRT”
is a transaction in which we (i) issue convertible securities at (A) a conversion, exercise or exchange rate or other price that
is based upon and/or varies with the trading prices of, or quotations for, the shares of our common stock at any time after the
initial issuance of such convertible securities, or (B) with a conversion, exercise or exchange price that is subject to being
reset at some future date after the initial issuance of such convertible securities or upon the occurrence of specified or contingent
events directly or indirectly related to our business or the market for the common stock, other than pursuant to a customary “weighted
average” anti-dilution provision or (ii) enter into any agreement whereby we or any subsidiary may sell securities at a future
determined price. If we experience delays in the registration of the Registrable Securities, these terms of the Securities Purchase
Agreement and certain applicable securities laws could prohibit or restrict us from pursuing equity financing transactions for
what could be an extended period of time. In addition, the Warrants contain certain anti-dilution protections that adjust downward
the exercise price of the Warrants in the event we offer, sell and issue securities at a lower consideration price per share than
the then-effective exercise price of the Warrants. All of these provisions could make our securities less attractive to investors
and could limit our ability to obtain adequate financing on a timely basis or on acceptable terms in the future, which could have
harmful effects on our financial condition and operations. Additionally, certain of those provisions could dilute the ownership
interests of our other current common stockholders.
Our current and any future debt facilities will require
us to use our limited capital to repay amounts owed and may impose limitations on our operations, which could negatively affect
our business plans.
On September 30, 2013, we entered into the Life Sciences Accelerator
Funding Agreement (the “MLSC Loan Agreement”) with the Massachusetts Life Sciences Center (“MLSC”), pursuant
to which MLSC has provided us an unsecured subordinated loan in principal amount of $1,000,000 (such loan, the “MLSC Loan”).
The MLSC Loan bears interest at a rate of 10% per annum, and will become fully due and payable on the earlier of (i) September
30, 2018, (ii) the occurrence of an event of default under the MLSC Loan Agreement, or (iii) the completion of a sale of substantially
all of our assets, a change-of-control transaction or one or more financing transactions in which we receive net proceeds of $5,000,000
or more in a 12-month period. We will need substantial amounts of cash in order to repay the principal and interest owed under
the MLSC Loan as it becomes due, which we may not have or be able to obtain. Any failure to make payments as required under the
MLSC Loan Agreement would constitute an event of default, and could result in, among other things, MLSC’s acceleration of
all amounts due thereunder.
Further, the MLSC Loan Agreement restricts our use of the proceeds
of the MLSC Loan to funding working capital requirements and/or the purchase of capital assets in the life sciences field, and
we are expressly prohibited from using any such proceeds for any severance payment, investment in certain securities or payment
for goods or services to a related party of the Company. Additionally, the MLSC Loan Agreement provides that, for so long as any
of the MLSC Loan remains outstanding, our headquarters and at least a majority of our employees must be located in Massachusetts
and we must not take certain actions without obtaining MLSC’s prior consent, including without limitation paying dividends
on our capital stock, redeeming any of our outstanding securities, and completing a sale of substantially all of our assets or
a change-of-control transaction. Further, our failure to remain a “certified life sciences company” under the Massachusetts
General Law would constitute an event of default under the MLSC Loan Agreement. Our ability to pursue our business plans during
the term of the MLSC Loan may be severely limited as a result of those restrictions, which could cause our operations and financial
condition to suffer.
In addition, the MLSC Loan agreement restricts our ability,
without the prior written consent of MLSC, to incur certain types and amounts of additional indebtedness, including indebtedness
senior or, in certain circumstances, equal to the MLSC Loan and any indebtedness to any of our stockholders or employees that is
not expressly subordinated to the MLSC Loan. Our ability to finance our operations could be limited if, while the MLSC Loan is
outstanding, the only source of capital available to us is prohibited by the restrictions set forth in the MLSC Loan Agreement,
in which case we may be forced to curtail or eliminate some or all of our operations.
Our short operating history may hinder our ability to
successfully meet our objectives.
We are a development stage company subject to the risks, uncertainties
and difficulties frequently encountered by early-stage companies in evolving markets. Our operations to date have been primarily
limited to organizing and staffing, developing and securing our technology and undertaking or funding preclinical studies of our
lead product candidate. We have not demonstrated our ability to successfully complete large-scale, pivotal clinical trials, obtain
regulatory approvals, manufacture a commercial scale product or arrange for a third party to do so on our behalf, or conduct sales
and marketing activities necessary for successful product commercialization.
Because of our limited operating history, we have limited insight
into trends that may emerge and affect our business, and errors may be made in developing an approach to address those trends and
the other challenges faced by development stage companies. Failure to adequately respond to such trends and challenges could cause
our business, results of operations and financial condition to suffer or fail. Further, our limited operating history may make
it difficult for our stockholders to make any predictions about our likelihood of future success or viability.
If we are not able to attract and retain qualified management
and scientific personnel, we may fail to develop our technologies and product candidates.
Our future success depends to a significant degree on the skills,
experience and efforts of the principal members of our scientific and management personnel. These members include Dr. Terrence
Norchi, MD, our President and Chief Executive Officer. The loss of Dr. Norchi or any of our other key personnel could harm our
business and might significantly delay or prevent the achievement of research, development or business objectives. Further, our
operation as a public company will require that we attract additional personnel to support the establishment of appropriate financial
reporting and internal controls systems. Competition for personnel is intense. We may not be able to attract, retain and/or successfully
integrate qualified scientific, financial and other management personnel, which could materially harm our business.
If we fail to properly manage any growth we may experience,
our business could be adversely affected.
We anticipate increasing the scale of our operations as we seek
to develop our product candidates, including hiring and training additional personnel and establishing appropriate systems for
a company with larger operations. The management of any growth we may experience will depend, among other things, upon our ability
to develop and improve our operational, financial and management controls, reporting systems and procedures. If we are unable to
manage any growth effectively, our operations and financial condition could be adversely affected.
We have identified material weaknesses in our internal
control over financial reporting, and we have been required to restate our audited consolidated financial statements as of and
for the year ended September 30, 2013. The continuing material weaknesses in our internal control over financial reporting could,
if not remediated, result in future restatements of and/or material misstatements in our financial results.
Our management is responsible for establishing and maintaining
adequate internal control over our financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. As
disclosed in Item 4 of Part I of this report, management has identified material weaknesses in our disclosure controls and procedures
and our internal control over financial reporting. A material weakness is defined as a deficiency, or combination of deficiencies,
in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our consolidated
financial statements will not be prevented or detected on a timely basis. As a result of these material weaknesses, our management
concluded that our internal control over financial reporting was not effective as of September 30, 2013, and that our disclosure
controls and procedures were not effective as of March 31, 2014.
Additionally, as described in Item 4 of Part I of this report
and as disclosed in our Current Report on Form 8-K filed with the SEC on May 1, 2014, on April 25, 2013, we discovered certain
presentation errors in our consolidated financial statements as of and for the year ended September 30, 2013 and for the period
from inception (March 6, 2006) through September 30, 2013, which appeared in our Annual Report on Form 10-K for the year ended
September 30, 2013 filed with the SEC on December 27, 2013. Although such errors had no effect on our consolidated net loss or
our consolidated stockholders’ equity (deficit) and we therefore determined that such errors were immaterial, we and our
independent auditor concluded that such errors required the restatement of our consolidated financial statements appearing in our
Annual Report on Form 10-K for the year ended September 30, 2013. As a result, on May 1, 2014, we filed an amendment to such Annual
Report on Form 10-K/A in order to include restated consolidated financial statements that correct the identified presentation errors.
See such Annual Report on Form 10-K/A, including the explanatory note included therein, for a further description of the nature
of the identified presentation errors.
We have developed proposed actions aimed at remediating some
of the material weaknesses we have identified in our internal control over financial reporting. In light of our discovery of errors
in, and our resulting conclusion to restate, our consolidated financial statements that appeared in our originally filed Annual
Report on Form 10-K for the year ended September 30, 2013, we expect to increase our efforts in the near term to strengthen our
financial reporting functions, including our intention to hire a new Chief Financial Officer that is able to serve our Company
on a full-time basis, which we have been pursuing during the quarter ended March 31, 2014 by actively seeking candidates for such
position. If our remedial measures are insufficient to address the material weaknesses we have identified, or if additional material
weaknesses or significant deficiencies in our internal control are discovered or occur in the future, there may be an increased
likelihood that our consolidated financial statements require further restatements and/or contain material misstatements. Any restatement
of our financial results, including without limitation the restatement described above, could result in substantial costs to us
for accounting and legal fees and could lead to litigation against us. In addition, even if we are successful in strengthening
our controls and procedures, those controls and procedures may not be adequate to prevent or identify irregularities or errors
or to facilitate the fair presentation of our consolidated financial statements. If we fail to achieve and maintain the adequacy
of our internal controls in accordance with applicable standards, we would be unable to conclude that we have effective internal
controls over financial reporting. If we cannot produce reliable financial reports, our business and financial condition could
be harmed, investors could lose confidence in our reported financial information, and the market price of our stock could decline
significantly. Moreover, our reputation with lenders, investors, securities analysts and others may be adversely affected.
We may become involved in litigation and administrative
proceedings that may materially affect us.
From time to time, we may become involved in various legal proceedings
relating to matters incidental to the ordinary course of our business, including commercial, employment, class action, whistleblower
and other litigation and claims, and governmental and other regulatory investigations and proceedings. Such matters can be time-consuming,
divert management's attention and resources and cause us to incur significant expenses. Furthermore, because litigation is inherently
unpredictable, there can be no assurance that the results of any of these actions will not have a material adverse effect on our
business, results of operations or financial condition.
We rely significantly on information technology and any
failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm our ability
to operate our business effectively.
We maintain sensitive data pertaining to our Company on our
computer networks, including information about our research and development activities, our intellectual property and other proprietary
business information. Our internal computer systems and those of third parties with which we contract may be vulnerable to damage
from cyber attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical
failures, despite the implementation of security measures. System failures, accidents or security breaches could cause interruptions
to our operations, including material disruption of our research and development activities, result in significant data losses
or theft of our intellectual property or proprietary business information, and could require substantial expenditures to remedy.
To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications or inappropriate
disclosure of confidential or proprietary information, we could incur liability and our research and development programs could
be delayed, any of which would harm our business and operations.
Risks Related to the Development and
Commercialization of our Product Candidates
Our current business plan is dependent on the success
of one product candidate.
Our business is currently focused almost entirely on the development
and commercialization of one product candidate, AC5. Our reliance on one primary product candidate means that, if we are not able
to obtain regulatory approvals and market acceptance of that product, our chances for success will be significantly reduced. We
are also less likely to withstand competitive pressures if any of our competitors develops and obtains regulatory approval or certification
for a similar product faster than we can or that is otherwise more attractive to the market than AC5. Our current dependence on
one product candidate increases the risk that our business will fail if our development efforts for that product candidate experience
delays or other obstacles or are otherwise not successful.
The Chemistry, Manufacturing and Control (“CMC”)
process may be challenging.
Because of the complexity of our lead product candidate, the
CMC process may be difficult to complete successfully within the parameters required by the FDA or its foreign counterparts. Peptide
formulation optimization is particularly challenging, and any delays could negatively impact our anticipated clinical trial and
subsequent commercialization timeline. Furthermore, we have, and the third parties with which we may establish relationships may
also have, limited experience with attempting to commercialize a self-assembling peptide as a medical device, which increases the
risks associated with completing the CMC process successfully, on time, or within the projected budget. Failure to complete the
CMC process successfully would impact our ability to start a clinical trial and could severely limit the long-term viability of
our business.
Our principal product candidate is inherently risky because
it is based on novel technologies.
We are subject to the risks of failure inherent in the development
of products based on new technologies. The novel nature of AC5 creates significant challenges with respect to product development
and optimization, engineering, manufacturing, scale-up, quality systems, pre-clinical
in vitro
and
in vivo
testing,
government regulation and approval, third-party reimbursement and market acceptance. Our failure to overcome any one of those challenges
could harm our operations, ability to commence and/or complete a clinical trial, and overall chances for success.
Compliance with governmental regulations regarding the
treatment of animals used in research could increase our operating costs, which would adversely affect the commercialization of
our technology.
The Animal Welfare Act (“AWA”) is the federal law
that covers the treatment of certain animals used in research. Currently, the AWA imposes a wide variety of specific regulations
that govern the humane handling, care, treatment and transportation of certain animals by producers and users of research animals,
most notably relating to personnel, facilities, sanitation, cage size, and feeding, watering and shipping conditions. Third parties
with whom we contract are subject to registration, inspections and reporting requirements under the AWA. Furthermore, some states
have their own regulations, including general anti-cruelty legislation, which establish certain standards in handling animals.
Comparable rules, regulations, and or obligations exist in many foreign jurisdictions. If we or our contractors fail to comply
with regulations concerning the treatment of animals used in research, we may be subject to fines and penalties and adverse publicity,
and our operations could be adversely affected.
If the FDA or similar foreign agencies or intermediaries
impose requirements or an alternative product classification more onerous than we anticipate, our business could be adversely affected.
The development plan for our lead product candidate is based
on our anticipation of pursuing the medical device regulatory pathway. However, the FDA and other applicable foreign agencies will
have authority to finally determine the regulatory route for our product candidates in their jurisdictions. If the FDA or similar
foreign agencies or intermediaries deem our product to be a member of a category other than a medical device, such as a drug or
biologic, or impose additional requirements on our pre-clinical and clinical development than we presently anticipate, financing
needs would increase, the timeline for product approval would lengthen, the program complexity and resource requirements world
increase, and the probability of successfully commercializing a product would decrease. Any or all of those circumstances would
materially adversely affect our business.
If we are not able to secure and maintain
relationships with third parties that are capable of conducting clinical trials on our product candidates, our product development
efforts could be adversely impacted.
Our management has limited experience in
conducting preclinical development activities and clinical trials. As a result, we have relied and will need to continue to rely
on research institutions and other third party clinical investigators to conduct our preclinical and clinical trials. If we are
unable to reach agreement with qualified research institutions and clinical investigators on acceptable terms, or if any resulting
agreement is terminated prior to the completion of our clinical trials, then our product development efforts could be materially
delayed or otherwise harmed. Further, our reliance on third parties to conduct our clinical trials will provide us with less control
over the timing and cost of those trials and the ability to recruit suitable subjects to participate in the trials. Moreover, the
FDA and other regulatory authorities require that we comply with standards, commonly referred to as good clinical practices (“GCP”),
for conducting, recording and reporting the results of our preclinical development activities and our clinical trials, to assure
that data and reported results are credible and accurate and that the rights, safety and confidentiality of trial participants
are protected. Additionally, we and any third party contractor performing preclinical and clinical studies are subject to regulations
governing the treatment of human and animal subjects in performing those studies. Our reliance on third parties that we do not
control does not relieve us of those responsibilities and requirements. If those third parties do not successfully carry out their
contractual duties, meet expected deadlines or conduct our preclinical development activities or clinical trials in accordance
with regulatory requirements or stated protocols, we may not be able to obtain, or may be delayed in obtaining, regulatory approvals
for our product candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our product
candidates. Any of those circumstances would materially harm our business and prospects.
Any clinical trials that are planned or are conducted
on our product candidates may not start or may fail.
Clinical trials are lengthy, complex and extremely expensive
processes with uncertain expenditures and results and frequent failures. Any clinical trials that are planned or which commence
for any of our product candidates could be delayed, limited or fail for a number of reasons, including if:
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the FDA or other regulatory authorities do not grant permission to proceed or place a trial on clinical hold due to safety concerns or other reasons;
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sufficient suitable subjects do not enroll or remain in our trials;
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we fail to produce necessary amounts of product candidate;
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subjects experience an unacceptable rate of efficacy of the product candidate;
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subjects experience an unacceptable rate or severity of adverse side effects, demonstrating a lack of safety of the product candidate;
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any portion of the trial or related studies produces negative or inconclusive results or other adverse events;
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reports from preclinical or clinical testing on similar technologies and products raise safety and/or efficacy concerns;
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third-party clinical investigators lose their licenses or permits necessary to perform our clinical trials, do not perform their clinical trials on their anticipated schedule or consistent with the clinical trial protocol, GCP or regulatory requirements, or other third parties do not perform data collection and analysis in a timely or accurate manner;
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inspections of clinical trial sites by the FDA or an institutional review board (“IRB”) or other applicable regulatory authorities find violations that require us to undertake corrective action, suspend or terminate one or more testing sites, or prohibit us from using some or all of the resulting data in support of our marketing applications with the FDA or other applicable agencies;
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manufacturing facilities of our third party manufacturers are ordered by the FDA or other government or regulatory authorities to temporarily or permanently shut down due to violations of current good manufacturing practices (“cGMP”) or other applicable requirements;
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third-party contractors become debarred or suspended or otherwise penalized by FDA or other government or regulatory authorities for violations of regulatory requirements;
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the FDA or other regulatory authorities impose requirements on the design, structure or other features of the clinical trials for our product candidates that we and/or our third party contractors are unable to satisfy;
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one or more IRBs refuses to approve, suspends or terminates a trial at an investigational site, precludes enrollment of additional subjects, or withdraws its approval of the trial;
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the FDA or other regulatory authorities seek the advice of an advisory committee of physician and patient representatives that may view the risks of our product candidates as outweighing the benefits;
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the FDA or other regulatory authorities require us to expand the size and scope of the clinical trials, which we may not be able to do; or
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the FDA or other regulatory authorities impose prohibitive post-marketing restrictions on any of our product candidates that attains regulatory approval.
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Any delay or failure of one or more of our clinical trials may
occur at any stage of testing. Any such delay could cause our development costs to materially increase, and any such failure could
significantly impair our business plans, which would materially harm our financial condition and operations.
We cannot market and sell any product candidate in the
U.S. or in any other country or region if we fail to obtain the necessary regulatory approvals or certifications from applicable
government agencies.
We cannot sell our product candidates in any country until regulatory
agencies grant marketing approval or other required certifications. The process of obtaining such approval is lengthy, expensive
and uncertain. If we are able to obtain such approvals for our lead product candidate or any other product candidate we may pursue,
which we may never be able to do, it would likely be a process that takes many years to achieve.
To obtain marketing approvals in the U.S. for our product candidates,
we must, among other requirements, complete carefully controlled and well-designed clinical trials sufficient to demonstrate to
the FDA that the product candidate is safe and effective for each indication for which we seek approval. As described above, many
factors could cause those trials to be delayed or to fail.
We believe that the pathway to marketing approval in the U.S.
for our lead product candidate will likely require the process of FDA Premarket Approval (“PMA”) for the product, which
is based on novel technologies and likely will be classified as a Class III medical device. This approval pathway can be lengthy
and expensive, and is estimated to take from one to three years or longer from the time the PMA application is submitted to the
FDA until approval is obtained, if approval can be obtained at all.
Similarly, to obtain approval to market our product candidates
outside of the U.S., we will need to submit clinical data concerning our product candidates to and receive marketing approval or
other required certifications from governmental or other agencies in those countries, which in certain countries includes approval
of the price we intend to charge for a product. For instance, in order to obtain the certification needed to market our lead product
candidate in the EU, we believe that we will need to obtain a CE mark for the product, which entails scrutiny by applicable regulatory
agencies and bears some similarity to the PMA process, including completion of one or more successful clinical trials.
We may encounter delays or rejections if changes occur in regulatory
agency policies, if difficulties arise within regulatory or related agencies such as, for instance, any delays in their review
time, or if reports from preclinical and clinical testing on similar technology or products raise safety and/or efficacy concerns
during the period in which we develop a product candidate or during the period required for review of any application for marketing
approval or certification.
Any difficulties we encounter during the approval or certification
process for any of our product candidates would have a substantial adverse impact on our operations and financial condition and
could cause our business to fail.
Any product for which we obtain required regulatory approvals
could be subject to post-approval regulation, and we may be subject to penalties if we fail to comply with such post-approval requirements.
Any product for which we are able to obtain
marketing approval or other required certifications, and for which we are able to obtain approval of the manufacturing processes,
post-approval clinical data, labeling, advertising and promotional activities for such product, will be subject to continual requirements
of and review by the FDA and comparable foreign regulatory authorities, including through periodic inspections. These requirements
include, without limitation, submissions of safety and other post-marketing information and reports, registration requirements,
cGMP requirements relating to quality control, quality assurance and corresponding maintenance of records and documents. Maintaining
compliance with any such regulations that may be applicable to us or our product candidates in the future would require significant
time, attention and expense. Even if marketing approval of a product is granted, the approval may be subject to limitations on
the indicated uses for which the product may be marketed or other conditions of approval, or may contain requirements for costly
and time consuming post-marketing approval testing and surveillance to monitor the safety or efficacy of the product. Discovery
after approval of previously unknown problems with any approved product candidate or related manufacturing processes, or failure
to comply with regulatory requirements, may result in consequences to us such as:
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restrictions on the marketing or distribution of a product, including refusals to permit the import or export of the product;
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warning letters from governmental agencies;
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the requirement to include warning labels on the products;
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withdrawal or recall of the products from the market;
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refusal by the FDA or other regulatory agencies to approve pending applications or supplements to approved applications that
we may submit;
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suspension of any ongoing clinical trials;
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fines, restitution or disgorgement of profits or revenue;
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suspension or withdrawal of marketing approvals or certifications; or
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civil or criminal penalties.
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If any of our product candidates achieves required regulatory
marketing approvals or certifications in the future, the subsequent occurrence of any such post-approval consequences would materially
adversely affect our business and operations.
Current or future legislation may make it more difficult
and costly for us to obtain marketing approval or other certifications of our product candidates.
In 2007, the Food and Drug Administration Amendments Act of
2007 (the “FDAAA”) was adopted. This legislation grants significant powers to the FDA, many of which are aimed at assuring
the safety of medical products after approval. For example, the FDAAA grants the FDA authority to impose post-approval clinical
study requirements, require safety-related changes to product labeling and require the adoption of complex risk management plans.
Pursuant to the FDAAA, the FDA may require that a new product be used only by physicians with specialized training, only in specified
health care settings, or only in conjunction with special patient testing and monitoring. The legislation also includes requirements
for disclosing clinical study results to the public through a clinical study registry, and renewed requirements for conducting
clinical studies to generate information on the use of products in pediatric patients. Under the FDAAA, companies that violate
these laws are subject to substantial civil monetary penalties. The requirements and changes imposed by the FDAAA, or any other
new legislation, regulations or policies that grant the FDA or other regulatory agencies additional authority that further complicates
the process for obtaining marketing approval and/or further restricts or regulates post-marketing approval activities, could make
it more difficult and more costly for us to obtain and maintain approval of any of our product candidates.
Public perception of ethical and social issues may limit
or discourage the type of research we conduct.
Our clinical trials will involve human subjects, and we and
third parties with whom we contract also conduct research involving animal subjects. Governmental authorities could, for public
health or other purposes, limit the use of human or animal research or prohibit the practice of our technology. Further, ethical
and other concerns about our or our third party contractors’ methods, particularly the use of human subjects in clinical
trials or the use of animal testing, could delay our research and preclinical and clinical trials, which would adversely affect
our business and financial condition.
Use of third parties to manufacture our product candidates
may increase the risk that preclinical development, clinical development and potential commercialization of our product candidates
could be delayed, prevented or impaired.
We have limited personnel with experience in medical device
development and manufacturing, do not own or operate manufacturing facilities, and generally lack the resources and the capabilities
to manufacture any of our product candidates on a clinical or commercial scale. We currently intend to outsource all or most of
the clinical and, commercial manufacturing and packaging of our product candidates to third parties. However, we have not established
long-term agreements with any third party manufacturers for the supply of any of our product candidates. There are a limited number
of manufacturers that operate under cGMP regulations and that are capable of and willing to manufacture our lead product candidate
utilizing the manufacturing methods that are required to produce that product candidate, and our product candidates will compete
with other product candidates for access to qualified manufacturing facilities. If we have difficulty locating third party manufacturers
to develop our product candidates for preclinical and clinical work, then our product development programs will experience delays
and otherwise suffer. We may also be unable to enter into agreements for the commercial supply of products with third party manufacturers
in the future, or may be unable to do so when needed or on acceptable terms. Any such events could materially harm our business.
Reliance on third party manufacturers entails risks to our business,
including without limitation:
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the failure of the third party to maintain regulatory compliance, quality assurance, and general expertise in advanced manufacturing
techniques and processes that may be necessary for the manufacture of our product candidates;
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limitations on supply availability resulting from capacity and scheduling constraints of the third parties;
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failure of the third party manufacturers to meet the demand for the product candidate, either from future customers or for
preclinical or clinical trial needs;
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the possible breach of the manufacturing agreement by the third party; and
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the possible termination or non-renewal of the agreement by the third party at a time that is costly or inconvenient for us.
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The failure of any of our contract manufacturers to maintain
high manufacturing standards could result in harm to clinical trial participants or patients using the products. Such failure could
also result in product liability claims, product recalls, product seizures or withdrawals, delays or failures in testing or delivery,
cost overruns or other problems that could seriously harm our business or profitability. Further, our contract manufacturers will
be required to adhere to FDA and other applicable regulations relating to manufacturing practices. Those regulations cover all
aspects of the manufacturing, testing, quality control and recordkeeping relating to our product candidates and any products that
we may commercialize in the future. The failure of our third party manufacturers to comply with applicable regulations could result
in sanctions being imposed on us, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing
approval or other required certifications of our product candidates, delays, suspension or withdrawal of approvals, license revocation,
seizures or recalls of product candidates, operating restrictions and criminal prosecutions, any of which could significantly and
adversely affect our business, financial condition and operations.
Materials necessary to manufacture our product candidates
may not be available on commercially reasonable terms, or at all, which may delay or otherwise hinder the development and commercialization
of those product candidates.
We will rely on the manufacturers of our product candidates
to purchase from third party suppliers the materials necessary to produce the compounds for preclinical and clinical studies, and
may continue to rely on those suppliers for commercial distribution if we obtain marketing approval or other required certifications
for any of our product candidates. The materials to produce our products may not be available when needed or on commercially reasonable
terms, and the prices for such materials may be susceptible to fluctuations. We do not have any control over the process or timing
of the acquisition of these materials by our manufacturers. Moreover, we currently do not have any agreements relating to the commercial
production of any of these materials. If these materials cannot be obtained for our preclinical and clinical studies, product testing
and potential regulatory approval of our product candidates would be delayed, which would significantly impact our ability to develop
our product candidates and materially adversely affect our ability to meet our objectives and obtain operations success.
We may not be successful in maintaining or establishing
collaborations, which could adversely affect our ability to develop and, if required regulatory approvals are obtained, commercialize,
our product candidates.
We intend to collaborate with physicians, patient advocacy groups,
foundations, government agencies, and/or other third parties to assist with the development of our product candidates. If required
regulatory approvals are obtained for any of our product candidates, then we may consider entering into selective collaboration
arrangements with medical technology, pharmaceutical or biotechnology companies and/or seek to establish strategic relationships
with marketing partners for the development, sale, marketing and/or distribution of our products within or outside of the U.S.
If we elect to seek collaborators in the future but are unable to reach agreements with suitable collaborators, then we may fail
to meet our business objectives for the affected product or program. Moreover, collaboration arrangements are complex and time
consuming to negotiate, document and implement, and we may not be successful in our efforts, if any, to establish and implement
collaborations or other alternative arrangements. The terms of any collaborations or other arrangements that we establish may not
be favorable to us, and the success of any such collaborations will depend heavily on the efforts and activities of our collaborators.
Any failure to engage successful collaborators could cause delays in our product development and/or commercialization efforts,
which could harm our financial condition and operational results.
We compete with other pharmaceutical and medical device
companies, including companies that may develop products that make our product candidates less attractive or obsolete.
The medical device, pharmaceutical and biotechnology industries
are highly competitive. If our product candidates become available for commercial sale, we will compete in that competitive marketplace.
There are several products on the market or in development that could be competitors with our lead product candidate. While our
management, which is familiar with these other products, believes that our lead product candidate could be safer and possibly more
effective than those competitors, those beliefs may be wrong. Further, most of our competitors have greater resources or capabilities
and greater experience in the development, approval and commercialization of medical devices or other products than we do. We may
not be able to compete successfully against them. We also compete for funding with other companies in our industry that are focused
on discovering and developing novel improvements in surgical bleeding prevention.
We anticipate that competition in our industry will increase.
In addition, the healthcare industry is characterized by rapid technological change, resulting in new product introductions and
other technological advancements. Our competitors may develop and market products that render our lead product candidate or any
future product candidate we may seek to develop non-competitive or otherwise obsolete. Any such circumstances could cause our operations
to suffer.
If we fail to generate market acceptance of our product
candidates and establish programs to educate and train surgeons as to the distinctive characteristics of our product candidates,
we will not be able to generate revenues on our product candidates.
Acceptance in the marketplace of our lead product candidate
depends in part on our and our third party contractors’ ability to establish programs for the training of surgeons in the
proper usage of that product candidate, which will require significant expenditure of resources. Convincing surgeons to dedicate
the time and energy necessary to properly train to use new products and techniques is challenging, and we may not be successful
in those efforts. If surgeons are not properly trained, they may ineffectively use our product candidates. Such misuse could result
in unsatisfactory patient outcomes, patient injury, negative publicity or lawsuits against us. Accordingly, even if our product
candidates are superior to alternative treatments, our success will depend on our ability to gain and maintain market acceptance
for those product candidates among certain select groups of the population and develop programs to effectively train them to use
those products. If we fail to do so, we will not be able to generate revenue from product sales and our business, financial condition
and results of operations will be adversely affected.
We face uncertainty related to pricing, reimbursement
and healthcare reform, which could reduce our potential revenues.
If our product candidates are approved for commercialization,
any sales will depend in part on the availability of coverage and reimbursement from third-party payors such as government insurance
programs, including Medicare and Medicaid, private health insurers, health maintenance organizations and other healthcare related
organizations. If our product candidates obtain marketing approval, pricing and reimbursement may be uncertain. Both the federal
and state governments in the U.S. and foreign governments continue to propose and pass new legislation affecting coverage and reimbursement
policies, which are designed to contain or reduce the cost of healthcare. Further, federal, state and foreign healthcare proposals
and reforms could limit the prices that can be charged for the product candidates that we may develop, which may limit our commercial
opportunity. Adoption of our product candidates by the medical community may be limited if doctors and hospitals do not receive
adequate partial or full reimbursement for use of our products, if any are commercialized. In some foreign jurisdictions, marketing
approval or allowance could be dependent upon pre-marketing price negotiations. As a result, any denial of private or government
payor coverage or inadequate reimbursement for procedures performed using our products, before or upon commercialization, could
harm our business and reduce our prospects for generating revenue.
In addition, the U.S. Congress recently adopted legislation
regarding health insurance. As a result of this new legislation, substantial changes could be made to the current system for paying
for healthcare in the U.S., including modifications to the existing system of private payors and government programs, such as Medicare,
Medicaid and State Children’s Health Insurance Program, creation of a government-sponsored healthcare insurance source, or
some combination of those, as well as other changes. Restructuring the coverage of medical care in the U.S. could impact reimbursement
for medical devices such as our product candidates. If reimbursement for our approved product candidates, if any, is substantially
less than we expect, or rebate obligations associated with them are substantially increased, our business could be materially and
adversely impacted.
The use of our product candidates in human subjects may
expose us to product liability claims, and we may not be able to obtain adequate insurance or otherwise defend against any such
claims.
We face an inherent risk of product liability claims and do
not currently have product liability insurance coverage. We will need to obtain insurance coverage if and when we begin clinical
trials and commercialization of any of our product candidates. We may not be able to obtain or maintain product liability insurance
on acceptable terms with adequate coverage. If claims against us exceed any applicable insurance coverage we may obtain, then our
business could be adversely impacted. Regardless of whether we would be ultimately successful in any product liability litigation,
such litigation could consume substantial amounts of our financial and managerial resources, which could significantly harm our
business.
Risks Related to our Intellectual
Property
If we are unable to obtain and maintain protection for
our intellectual property rights, the value of our technology and products will be adversely affected.
Our success will depend in large part on our ability to obtain
and maintain protection in the U.S. and other countries for the intellectual property rights covering or incorporated into our
technology and products. The ability to obtain patents covering technology in the field of medical devices generally is highly
uncertain and involves complex legal, technical, scientific and factual questions. We may not be able to obtain and maintain patent
protection relating to our technology or products. Even if issued, patents issued or licensed to us may be challenged, narrowed,
invalidated, held to be unenforceable or circumvented, or determined not to cover our product candidates or our competitors’
products, which could limit our ability to stop competitors from marketing identical or similar products. Further, we cannot be
certain that we were the first to make the inventions claimed in the patents we own or license, or that protection of the inventions
set forth in those patents was the first to be filed in the U.S. Third parties that have filed patents or patent applications covering
similar technologies or processes may challenge our claim of sole right to use the intellectual property covered by the patents
we own or exclusively license. Moreover, changes in applicable intellectual property laws or interpretations thereof in the U.S.
and other countries may diminish the value of our intellectual property rights or narrow the scope of our patent protection. Any
failure to obtain or maintain adequate protection for the intellectual property rights we use would materially harm our business,
product development programs and prospects.
In addition, our proprietary information, trade secrets and
know-how are important components of our intellectual property rights. We seek to protect our proprietary information, trade secrets,
know-how and confidential information, in part, with confidentiality agreements with our employees, corporate partners, outside
scientific collaborators, sponsored researchers, consultants and other advisors. We also have invention or patent assignment agreements
with our employees and certain consultants and advisors. If our employees or consultants breach those agreements, we may not have
adequate remedies for any of those breaches. In addition, our proprietary information, trade secrets and know-how may otherwise
become known to or be independently developed by others. Enforcing a claim that a party illegally obtained and is using our proprietary
information, trade secrets and know-how is difficult, expensive and time consuming, and the outcome is unpredictable. In addition,
courts outside the U.S. may be less willing to protect trade secrets. Costly and time consuming litigation could be necessary to
seek to enforce and determine the scope of our intellectual property rights, and failure to obtain or maintain protection thereof
could adversely affect our competitive business position and results of operations.
If we lose certain intellectual property rights owned
by third parties and licensed to us, our business could be materially harmed.
We have entered into certain in-license agreements with MIT
and with certain other third parties, and may seek to enter into additional in-license agreements relating to other intellectual
property rights in the future. To the extent we and our product candidates rely heavily on any such in-licensed intellectual property,
we are subject to our and the counterparty’s compliance with the terms of such agreements in order to maintain those rights.
Presently, we, our lead product candidate and our business plans are dependent on the patent and other intellectual property rights
that are licensed to us under our license agreement with MIT. Although that agreement has a durational term through the life of
the licensed patents, it also imposes certain diligence, capital raising, and other obligations on us, our breach of which could
permit MIT to terminate the agreement. Further, we are responsible for all patent prosecution and maintenance fees under that agreement,
and a failure to pay such fees on a timely basis could also entitle MIT to terminate the agreement. Any failure by us to satisfy
our obligations under our license agreement with MIT or any other dispute or other issue relating to that agreement could cause
us to lose some or all of our rights to use certain intellectual property that is material to our business and our lead product
candidate, which would materially harm our product development efforts and could cause our business to fail.
If we infringe or are alleged to infringe the intellectual
property rights of third parties, our business and financial condition could suffer.
Our research, development and commercialization activities,
as well as any product candidates or products resulting from those activities, may infringe or be accused of infringing a patent
or other intellectual property under which we do not hold a license or other rights. Third parties may own or control those patents
or other rights in the U.S. or abroad. The third parties that own or control those intellectual property rights could bring claims
against us that would cause us to incur substantial time, expense, and diversion of management attention. If a patent or other
intellectual property infringement suit were brought against us, we could be forced to stop or delay research, development, manufacturing
or sales, if any, of the applicable product or product candidate that is the subject of the suit. In order to avoid or settle potential
claims with respect to any of the patent or other intellectual property rights of third parties, we may choose or be required to
seek a license from a third party and be required to pay license fees or royalties or both. Any such license may not be available
on acceptable terms, or at all. Even if we or our future collaborators were able to obtain a license, the rights granted to us
or them could be non-exclusive, which could result in our competitors gaining access to the same intellectual property rights and
materially negatively affecting the commercialization potential of our planned products. Ultimately, we could be prevented from
commercializing one or more product candidates, or be forced to cease some aspects of our business operations, if, as a result
of actual or threatened infringement claims, we are unable to enter into licenses on acceptable terms or at all or otherwise settle
such claims. Further, if any such claims were successful against us, we could be forced to pay substantial damages. Any of those
results could significantly harm our business, prospects and operations.
Risks Related to the Merger and Ownership
of our Common Stock
There is not now, and there may not ever be, an active
market for our common stock, which trades in the over-the-counter market in low volumes and at volatile prices.
There currently is a limited market for our common stock. Although
our common stock is quoted on the OTCQB, an over-the-counter quotation system, trading of our common stock is extremely limited
and sporadic and generally at very low volumes. Further, the price at which our common stock may trade is volatile and we expect
that it will continue to fluctuate significantly in response to various factors, many of which are beyond our control. The stock
market in general, and securities of small-cap companies driven by novel technologies in particular, has experienced extreme price
and volume fluctuations in recent years. Continued market fluctuations could result in further volatility in the price at which
our common stock may trade, which could cause its value to decline. To the extent we seek to raise capital in the future through
the issuance of equity, those efforts could be limited or hindered by low and/or volatile market prices for our common stock.
We do not now, and are not expected to in the foreseeable future,
meet the initial listing standards of the Nasdaq Stock Market or any other national securities exchange. We presently anticipate
that our common stock will continue to be quoted on the OTCQB or another over-the-counter quotation system. In those venues, our
stockholders may find it difficult to obtain accurate quotations as to the market value of their shares of our common stock, and
may find few buyers to purchase their stock and few market makers to support its price.
A more active market for our common stock may never develop.
As a result, investors must bear the economic risk of holding their shares of our common stock for an indefinite period of time.
Our common stock is a “penny stock.”
The SEC has adopted regulations that generally define “penny
stock” as an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. The market
price of our common stock is, and is expected to continue to be in the near term, less than $5.00 per share and is therefore a
“penny stock.” Brokers and dealers effecting transactions in “penny stock” must disclose certain information
concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable
to purchase the securities. Those rules may restrict the ability of brokers or dealers to sell our common stock and may affect
the ability of our stockholders to sell their shares of our common stock. In addition, if our common stock continues to be quoted
on the OTCQB as we expect, then our stockholders may find it difficult to obtain accurate quotations for our stock, and may find
few buyers to purchase our stock and few market makers to support its price.
If we issue additional shares in the future, our existing
shareholders will be diluted.
Our articles of incorporation authorize the issuance of up to
300,000,000 shares of common stock. Since the closing of the merger on June 26, 2013, we have issued an aggregate of 15,400,000
shares of our common stock in capital-raising transactions, which equals approximately 21.4% of our currently issued and outstanding
common stock, and have also issued warrants to acquire up to an additional 38,345,985 shares of our common stock in connection
with such capital raising transactions, which, assuming no adjustments to and the full exercise of all such warrants and no other
issuances of our common stock, would equal approximately 34.7% of our then-issued and outstanding common stock. In addition to
capital -raising activities, other possible business and financial uses for our authorized common stock include, without limitation,
future stock splits, acquiring other companies, businesses or products in exchange for shares of common stock, issuing shares of
our common stock to partners in connection with strategic alliances, attracting and retaining employees by the issuance of additional
securities under our various equity compensation plans, or other transactions and corporate purposes that our Board of Directors
deems are in the Company’s best interest. Additionally, shares of common stock could be used for anti-takeover purposes or
to delay or prevent changes in control or management of the Company. We cannot provide assurances that any issuances of common
stock will be consummated on favorable terms or at all, that they will enhance stockholder value, or that shares will reduce the
book value per share and may contribute to a reduction in the market price of the outstanding shares of our common stock. If we
issue any such additional shares, such issuance will reduce the proportionate ownership and voting power of all current shareholders.
Further, such issuance may result in a change of control of our corporation.
Certain terms of our outstanding warrants could result
in additional dilution to our existing stockholders.
The number of shares of our common stock into which each of
our outstanding warrants is exercisable and the exercise price therefor are subject to adjustment in certain circumstances as set
forth in the terms of the warrants, including, without limitation, adjustment to the exercise price of the Warrants issued in the
Private Placement Financing in the event of certain subsequent issuances and sales of shares of our common stock (or securities
convertible or exercisable into shares of our common stock) at a price per share lower than the then-effective exercise price of
the Warrants, in which case the exercise price of the Warrants will be adjusted to equal such lower price per share. In the event
any such adjustment is triggered, all or some of our outstanding warrants could become exercisable for a greater number of shares
of our common stock and thereby dilute the ownership of our other stockholders upon an exercise thereof. Depending on the terms
of any subsequent issuance of securities or other circumstance that might trigger such an adjustment and the number of warrants
that are exercised, the amount of any such dilution could be significant.
Future sales of our common stock or rights to purchase
common stock, or the perception that such sales could occur, could cause our stock price to fall.
Even after giving effect to the funds raised in recent equity
and debt financings, we expect that significant additional capital will be needed in the near-term to continue our planned operations.
To raise capital, we may sell common stock, convertible securities or other equity securities in one or more transactions at prices
and in a manner we determine from time to time. Any such sales of our common stock by us or resales of our common stock by our
existing stockholders could cause the market price of our common stock to decline.
We have filed a registration statement seeking to register for
resale the 11,400,000 shares of our common stock issued in the Private Placement Financing, equal to approximately 15.8% of our
currently issued and outstanding common stock, and the 34,200,000 shares of our common stock that are currently issuable upon exercise
of the Warrants issued in the Private Placement Financing, which, assuming no adjustments to and the full exercise of the Warrants
and no other issuances of our common stock, equal approximately 32.2% of our then-issued and outstanding common stock. All such
shares would become registered and freely tradable upon the effectiveness of such a registration statement, and, even in the absence
of such an effective registration statement, such shares will become eligible for resale in the public market in accordance with
Rule 144, as defined and described further in these risk factors below, after specified periods of time have elapsed from their
initial issuance. Additionally, we have issued warrants in transactions unrelated to the Private Placement Financing to acquire
up to an additional 4,145,985 shares of our common stock, and we are authorized to grant equity awards under the our stock incentive
plan to our employees, directors and consultants for up to an aggregate of 10,231,197 shares of our common stock. Any future grants
of warrants, options or other securities exercisable or convertible into our common stock, or the exercise or conversion of such
shares, and any sales of such shares in the market, or the perception that such sales could occur, could cause our stock price
to fall.
FINRA sales practice requirements may limit a stockholder’s
ability to buy and sell our stock.
In addition to the “penny stock” rules described
above, the Financial Industry Regulatory Authority (“FINRA”) has adopted rules that require that, in recommending an
investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer.
Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable
efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information.
Under interpretations of these rules, FINRA has indicated its belief that there is a high probability that speculative low priced
securities will not be suitable for at least some customers. These FINRA requirements make it more difficult for broker-dealers
to recommend that at least some of their customers buy our common stock, which may limit the ability of our stockholders to buy
and sell our common stock and could have an adverse effect on the market for our shares.
There may be additional risks because we recently completed
a reverse merger transaction.
Additional risks may exist because we recently completed a “reverse
merger” transaction. Securities analysts of major brokerage firms may not provide coverage of the Company following the Merger
because there may be little incentive to brokerage firms to recommend the purchase of our common stock. There may also be increased
scrutiny by the SEC and other government agencies and holders of our securities due to the nature of the transaction, as there
has been increased focus on transactions such as the Merger in recent years. Further, since the Company existed as a “shell
company” under applicable rules of the SEC up until the closing of the Merger on June 26, 2013, there will be certain restrictions
and limitations on the Company going forward relating to any potential future issuances of additional securities to raise funding
and compliance with applicable SEC rules and regulations.
The Company may have material liabilities that were not
discovered before the closing of the Merger.
The Company may have material liabilities that were not discovered
before the consummation of the Merger. We could experience losses as a result of any such unasserted liabilities are eventually
found to be incurred, which could materially harm our business and financial condition. Although the Merger Agreement contained
customary representations and warranties from the Company concerning its assets, liabilities, financial condition and affairs,
there may be limited or no recourse against the Company’s prior owners or principals in the event those prove to be untrue.
As a result, the stockholders of the Company bear risks relating to any such unknown or unasserted liabilities.
Certain of our directors and officers own a significant
percentage of our capital stock as a result of the Merger and are able to exercise significant influence over the Company.
Certain of our directors and executive officers own a significant
percentage of our outstanding capital stock. Dr. Terrence W. Norchi, our President, Chief Executive Officer and a director, and
Dr. Avtar Dhillon, the Chairman of our Board of Directors, collectively hold or control approximately 25% of our outstanding shares
of common stock. Accordingly, these members of our Board of Directors and management team have substantial voting power to approve
matters requiring stockholder approval, including without limitation the election of directors, and have significant influence
over our affairs. This concentration of ownership could have the effect of delaying or preventing a change in control of our Company,
even if such a change in control would be beneficial to our stockholders.
The elimination of monetary liability against our directors
and officers under Nevada law and the existence of indemnification rights held by our directors, officers and employees may result
in substantial expenditures by us and may discourage lawsuits against our directors, officers and employees.
Our articles of incorporation eliminate the personal liability
of our directors and officers to our Company and our stockholders for damages for breach of fiduciary duty as a director or officer
to the extent permissible under Nevada law. Further, our amended and restated bylaws provide that we are obligated to indemnify
any of our directors or officers to the fullest extent authorized by Nevada law and, subject to certain conditions, advance the
expenses incurred by any director or officer in defending any action, suit or proceeding prior to its final disposition. Those
indemnification obligations could result in our Company incurring substantial expenditures to cover the cost of settlement or damage
awards against our directors or officers, which we may be unable to recoup. These provisions and resultant costs may also discourage
us from bringing a lawsuit against any of our current or former directors or officers for breaches of their fiduciary duties, and
may similarly discourage the filing of derivative litigation by our stockholders against our directors and officers even if such
actions, if successful, might otherwise benefit us or our stockholders.
We are subject to the
reporting requirements
of federal securities laws, compliance with which involves significant time, expense and expertise.
We are a public reporting company in the U.S., and, accordingly,
are subject to the information and reporting requirements of the Exchange Act and other federal securities laws, including the
obligations imposed by the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). The costs associated with preparing
and filing annual, quarterly and current reports, proxy statements and other information with the SEC in the ordinary course, as
well as preparing and filing annual audited and interim unaudited consolidated financial statements, have caused, and could continue
to cause, our operational expenses to remain at higher levels or continue to increase.
Our present management team has only limited experience managing
public companies. It will be time consuming, difficult and costly for our management team to acquire additional expertise and experience
in operating a public company, and to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley
Act and other applicable securities laws. We will need to hire additional financial reporting, internal controls, accounting and
other finance staff in order to develop and implement appropriate internal controls and reporting procedures as required by applicable
securities regulations for public companies, which we may not be able to do on a timely basis or at all.
Shares of our common stock that have not been registered
under federal securities laws are subject to resale restrictions imposed by Rule 144, including those set forth in Rule 144(i)
which apply to a former “shell company.” In addition, any shares of our common stock that are held by affiliates, including
any that are registered, will be subject to the resale restrictions of Rule 144.
Pursuant to Rule 144 (“Rule 144”) promulgated under
the Securities Act of 1933, as amended (the “Securities Act”), a “shell company” is defined as a company
that has no or nominal operations and either no or nominal assets; assets consisting solely of cash and cash equivalents; or assets
consisting of any amount of cash and cash equivalents and nominal other assets. We were a shell company prior to the closing of
the Merger, and as such, sales of our securities pursuant to Rule 144 are not permitted until at least 12 months have elapsed since
June 26, 2013, the date on which our Current Report on Form 8-K, reflecting our status as a non-shell company, was filed with the
SEC. Therefore, any outstanding restricted securities or any restricted securities we may sell in the future or issue to consultants
or employees in consideration for services rendered or for any other purpose will have limited liquidity unless and until such
securities are registered under the Securities Act and/or until at least June 26, 2014. Rule 144 also imposes other requirements
on us and our stockholders that must be met in order to effect a sale thereunder. As a result, it will be more difficult for us
to raise funding to support our operations through the sale of debt or equity securities unless we agree to register such securities
under the Securities Act, which could cause us to expend significant additional time and cash resources and which we presently
have no intention to pursue. Further, it may be more difficult for us to compensate our employees and consultants with our securities
instead of cash. Our previous status as a shell company could also limit our use of our securities to pay for any acquisitions
we may seek to pursue in the future (although none are currently planned), and could cause the value of our securities to decline.
In addition, any shares held by affiliates, including shares received in any registered offering, will be subject to certain additional
requirements in order to effect a sale of such shares under Rule 144.
We do not intend to pay cash dividends on our capital
stock in the foreseeable future.
We have never declared or paid any dividends on our shares and
do not anticipate paying any such dividends in the foreseeable future. Any future payment of cash dividends would depend on our
financial condition, contractual restrictions, solvency tests imposed by applicable corporate laws, results of operations, anticipated
cash requirements and other factors and will be at the discretion of our Board of Directors. Our stockholders should not expect
that we will ever pay cash or other dividends on our outstanding capital stock.
We are at risk of securities class action litigation that
could result in substantial
costs and divert management’s attention and resources.
In the past, securities class action litigation has been brought
against companies following periods of volatility of its securities in the marketplace, particularly following a company’s
initial public offering. Due to the volatility of our stock price, we could be the target of securities litigation in the future.
Securities litigation could result in substantial costs and divert management’s attention and resources.
Investment in our common stock involves a high degree of
risk. The risk factors described below summarize some of the material risks inherent in and affecting our business. You should
carefully consider the following risk factors before making an investment decision. If any of the following risks and uncertainties
actually occurs, our business, financial condition, and results of operations could be negatively impacted and you could lose all
or part of your investment.
Risks Related to our Business
We have incurred significant losses since inception. We
expect to continue to incur losses for the foreseeable future as we pursue our operations as a combined enterprise, and we may
never generate revenue or achieve or maintain profitability.
We have incurred losses in each year since our inception and
we expect that losses will continue to be incurred in the foreseeable future in the operation of our business. To date, we have
financed our operations entirely through equity and debt investments by founders, other investors and third parties, and we expect
to continue to rely on these sources of funding, to the extent available in the foreseeable future. Losses from operations have
resulted principally from costs incurred in research and development programs and from general and administrative expenses, including
significant costs associated with establishing and maintaining intellectual property rights, significant legal and accounting costs
pertaining to the closing of the Merger and related regulatory filings, and personnel expenses. We have devoted substantially all
of our time, money and efforts to date to the advancement of our technology and raising capital to support our business, and expect
to continue to devote significant time, money and efforts to such activities going forward.
We expect to continue to incur significant expenses and we anticipate
that those expenses and losses may increase in the foreseeable future as we seek to:
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develop our principal product candidate, AC5, including further development of the product’s composition and conducting
preclinical biocompatibility studies;
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raise capital needed to fund our operations;
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build and enhance investor relations and corporate communications capabilities;
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conduct clinical trials relating to AC5 and any other product candidate we seek to develop;
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attempt to gain regulatory approvals for any product candidate that successfully completes clinical trials;
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establish relationships with contract manufacturing partners, and invest in product and process development through such partners;
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maintain, expand and protect our intellectual property portfolio;
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advance additional candidates through our research and development pipeline;
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seek to commercialize selected product candidates for which we may obtain regulatory approval;
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hire additional regulatory, clinical, quality control, scientific, financial, and management consultants and personnel; and
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support and add operational, financial, accounting, facilities engineering and information systems consultants and personnel
to further our operations.
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To become and remain profitable, we must succeed in developing
and eventually commercializing product candidates with significant market potential. This will require us to be successful in a
number of challenging activities, including successfully completing preclinical testing and clinical trials of product candidates,
obtaining regulatory approval for our product candidates and manufacturing, marketing and selling any products for which we may
obtain regulatory approval. We are only in the preliminary stages of the earliest of those activities. We may never succeed in
those activities and may never generate operating revenues or achieve profitability. Even if we do generate operating revenues
sufficient to achieve profitability, we may not be able to sustain or increase profitability. Our failure to generate operating
revenues or become and remain profitable would impair our ability to raise capital, expand our business or continue our operations,
all of which would depress the price of our common stock. A decline in the prices of our common stock could cause our stockholders
to lose all or a part of their investment in the Company.
There is substantial doubt about our ability to continue
as a going concern.
We have not generated any revenue from operations since inception,
and we have incurred substantial net losses to date. Further, our operating expenses will likely increase in the foreseeable future,
as we seek to increase operations as a life sciences medical device company. Moreover, our cash position is vastly inadequate to
support our business plans and substantial additional funding will be needed in order to pursue those plans, which include research
and development of our primary product candidate, seeking regulatory approval for that product candidate, and pursuing its commercialization
in the U.S., Europe and other markets. Those circumstances raise substantial doubt about our ability to continue as a going concern.
We will need substantial additional funding and may be
unable to raise capital when needed, which would force us to delay, reduce or eliminate our product development programs or commercialization
efforts and could cause our business to fail.
We are a development stage company with no commercial products.
Our primary product candidate is in the process of being developed, and will require significant additional clinical development
and additional investment before it could potentially be commercialized. We anticipate that none of our product candidates will
be commercially available for several years, if at all.
We believe that our current cash and cash equivalents on hand
will be sufficient to meet our anticipated cash requirements through October 2014; however, based on our current operating expenses
and working capital requirements, we do not currently believe our existing cash resources are sufficient to meet our anticipated
needs for the next twelve months. In addition to the funds raised from our equity financings and debt financings, we will require
additional financing to fund our planned future operations, including the continuation of our ongoing research and development
efforts, seeking to license or acquire new assets, and researching and developing any potential patents, the related compounds
and any further intellectual property that we may acquire. In addition, our plans may change and/or we may use our capital resources
more rapidly than we currently anticipate. We presently expect that our expenses will increase in connection with our ongoing activities,
particularly as we commence preclinical and clinical development for our lead product candidate, AC5, and that we will need to
raise significant additional funds to continue operations. Our future capital requirements will depend on many factors, including:
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the scope, progress and results of our research and preclinical development activities;
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the scope, progress, results, costs, timing and outcomes of any clinical trials conducted for any of our product candidates;
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the timing of entering into, and the terms of, any collaboration agreements with third parties relating to any of our product
candidates;
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the timing of and the costs involved in obtaining regulatory approvals for our product candidates;
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the costs of operating, expanding and enhancing our operations to support our clinical activities and, if our product candidates
are approved, commercialization activities;
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the costs of maintaining, expanding and protecting our intellectual property portfolio, including potential litigation costs
and liabilities;
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the costs associated with maintaining and expanding our product pipeline;
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the costs associated with expanding our geographic focus;
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operating revenues, if any, received from sales of our product candidates, if any are approved by the U.S. Food and Drug Administration
(“FDA”) or other applicable regulatory agencies;
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the cost associated with being a public company, including obligations to regulatory agencies, investor relations, and corporate
communications;
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the costs of additional general and administrative personnel, including accounting and finance, legal and human resources employees;
and
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operating revenues, if any, received from sales of our product candidates, if any are approved by the FDA or other applicable
regulatory agencies.
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As a result of these and other factors, we expect that we will
need substantial additional funding in the future. We would likely seek such funding through public or private securities offerings,
incurrence of indebtedness, or some combination of those sources. We may also seek funding through collaborative arrangements if
we determine them to be necessary or appropriate, although these arrangements could require us to relinquish rights to our technology
or product candidates and could result in our receipt of only a portion of any revenues associated with the partnered product.
Additional funding may not be available from any of these sources when needed on acceptable terms, or at all. In addition, we are
bound by certain terms and obligations that may limit or otherwise impact our ability to raise additional funding in the near-term,
including restrictions in our loan agreement on our ability to incur certain types of additional indebtedness, discussed in further
detail in these Risk Factors below, and certain terms of the Private Placement Financing, including those discussed in these Risk
Factors below. These restrictions and provisions could make it more challenging for us to raise capital through the incurrence
of additional debt or through future equity issuances. Further, if we do raise capital through the sale of equity, or securities
convertible into equity, the ownership of our then existing stockholders would be diluted, which dilution could be significant
depending on the price at which we may be able to sell our securities. Also, if we raise additional capital through the incurrence
of indebtedness, we may become subject to additional covenants restricting our business activities, and the holders of debt instruments
may have rights and privileges senior to those of our equity investors. In addition, servicing the interest and principal repayment
obligations under debt facilities could divert funds that would otherwise be available to support research and development, clinical
or commercialization activities.
If we are unable to obtain adequate financing on a timely basis
or on acceptable terms in the future, we would likely be required to delay, reduce or eliminate one or more of our product development
activities, which could cause our business to fail.
The terms of the Private Placement Financing could impose
additional challenges on our ability to raise funding in the future.
The Securities Purchase Agreement related to the Private Placement
Financing imposes certain restrictions on our ability to issue equity or debt securities, including the following: during the period
commencing on January 30, 2014 and ending on the 90-day anniversary of the first date on which all the Registrable Securities (as
defined in the Securities Purchase Agreement) are covered by one or more effective registration statements, we may not offer, sell
or issue any securities, except for equity awards granted to service providers and securities issued in connection with certain
types of strategic transactions; during the period commencing on January 30, 2014 and ending on the six-month anniversary of the
first date on which all the Registrable Securities (as defined in the Securities Purchase Agreement) are covered by one or more
effective registration statements, such investors shall have certain notice and participation rights with respect to offers and
sales of securities that we may pursue; and until the earlier of the 12-month anniversary of the first date on which all the Registrable
Securities (as defined in the Securities Purchase Agreement) are covered by one or more effective registration statements and the
date on which all such investors have sold all of the shares of common stock to be registered hereunder, we may not effect or enter
into an agreement for and VRT, where a “VRT” is a transaction in which we (i) issue convertible securities at (A) a
conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of, or quotations
for, the shares of our common stock at any time after the initial issuance of such convertible securities, or (B) with a conversion,
exercise or exchange price that is subject to being reset at some future date after the initial issuance of such convertible securities
or upon the occurrence of specified or contingent events directly or indirectly related to our business or the market for the common
stock, other than pursuant to a customary “weighted average” anti-dilution provision or (ii) enter into any agreement
whereby we or any subsidiary may sell securities at a future determined price. In addition, the Warrants contain certain anti-dilution
protections that adjust downward the exercise price of the Warrants in the event we offer, sell and issue securities at a lower
consideration price per share than the then-effective exercise price of the Warrants. Those provisions could make our securities
less attractive to investors and could limit our ability to obtain adequate financing on a timely basis or on acceptable terms
in the future, which could have harmful effects on our financial condition and operations. Additionally, certain of those provisions
could dilute the ownership interests of our other current common stockholders.
Our current and any future debt facilities will require
us to use our limited capital to repay amounts owed and may impose limitations on our operations, which could negatively affect
our business plans.
On September 30, 2013, we entered into the Life Sciences Accelerator
Funding Agreement (the “MLSC Loan Agreement”) with the Massachusetts Life Sciences Center (“MLSC”), pursuant
to which MLSC has provided us an unsecured subordinated loan in principal amount of $1,000,000 (such loan, the “MLSC Loan”).
The MLSC Loan bears interest at a rate of 10% per annum, and will become fully due and payable on the earlier of (i) September
30, 2018, (ii) the occurrence of an event of default under the MLSC Loan Agreement, or (iii) the completion of a sale of substantially
all of our assets, a change-of-control transaction or one or more financing transactions in which we receive net proceeds of $5,000,000
or more in a 12-month period. We will need substantial amounts of cash in order to repay the principal and interest owed
under the MLSC Loan as it becomes due, which we may not have or be able to obtain. Any failure to make payments as required
under the MLSC Loan Agreement would constitute an event of default, and could result in, among other things, MLSC’s acceleration
of all amounts due there under.
Further, the MLSC Loan Agreement restricts our use of the proceeds
of the MLSC Loan to funding working capital requirements and/or the purchase of capital assets in the life sciences field, and
we are expressly prohibited from using any such proceeds for any severance payment, investment in certain securities or payment
for goods or services to a related party of the Company. Additionally, the MLSC Loan Agreement provides that, for so long
as any of the MLSC Loan remains outstanding, our headquarters and at least a majority of our employees must be located in Massachusetts
and we must not take certain actions without obtaining MLSC’s prior consent, including without limitation paying dividends
on our capital stock, redeeming any of our outstanding securities, and completing a sale of substantially all of our assets or
a change-of-control transaction. Further, our failure to remain a “certified life sciences company” under the
Massachusetts General Law would constitute an event of default under the MLSC Loan Agreement. Our ability to pursue our business
plans during the term of the MLSC Loan may be severely limited as a result of those restrictions, which could cause our operations
and financial condition to suffer.
In addition, the MLSC Loan agreement restricts our ability,
without the prior written consent of MLSC, to incur certain types and amounts of additional indebtedness, including indebtedness
senior or, in certain circumstances, equal to the MLSC Loan and any indebtedness to any of our stockholders or employees that is
not expressly subordinated to the MLSC Loan. Our ability to finance our operations could be limited if, while the MLSC Loan is
outstanding, the only source of capital available to us is prohibited by the restrictions set forth in the MLSC Loan Agreement,
in which case we may be forced to curtail or eliminate some or all of our operations.
Our short operating history may hinder our ability to
successfully meet our objectives.
We are a development stage company subject to the risks, uncertainties
and difficulties frequently encountered by early-stage companies in evolving markets. Our operations to date have been primarily
limited to organizing and staffing, developing and securing our technology and undertaking or funding preclinical studies of our
lead product candidate. We have not demonstrated our ability to successfully complete large-scale, pivotal clinical trials, obtain
regulatory approvals, manufacture a commercial scale product or arrange for a third party to do so on our behalf, or conduct sales
and marketing activities necessary for successful product commercialization.
Because of our limited operating history, we have limited insight
into trends that may emerge and affect our business, and errors may be made in developing an approach to address those trends and
the other challenges faced by development stage companies. Failure to adequately respond to such trends and challenges could cause
our business, results of operations and financial condition to suffer or fail. Further, our limited operating history may make
it difficult for our stockholders to make any predictions about our likelihood of future success or viability.
If we are not able to attract and retain qualified management
and scientific personnel, we may fail to develop our technologies and product candidates.
Our future success depends to a significant degree on the skills,
experience and efforts of the principal members of our scientific and management personnel. These members include Dr. Terrence
Norchi, MD, our President and Chief Executive Officer. The loss of Dr. Norchi or any of our other key personnel could harm our
business and might significantly delay or prevent the achievement of research, development or business objectives. Further, our
operation as a public company will require that we attract additional personnel to support the establishment of appropriate financial
reporting and internal controls systems. Competition for personnel is intense. We may not be able to attract, retain and/or successfully
integrate qualified scientific, financial and other management personnel, which could materially harm our business.
If we fail to properly manage any growth we may experience,
our business could be adversely affected.
We anticipate increasing the scale of our operations as we seek
to develop our product candidates, including hiring and training additional personnel and establishing appropriate systems for
a company with larger operations. The management of any growth we may experience will depend, among other things, upon our ability
to develop and improve our operational, financial and management controls, reporting systems and procedures. If we are unable to
manage any growth effectively, our operations and financial condition could be adversely affected.
We have identified material weaknesses in our internal
control over financial reporting which could, if not remediated, result in material misstatements in our financial statements.
Our management is responsible for establishing and maintaining
adequate internal control over our financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”). Management has identified material weaknesses in our internal control
over financial reporting as of December 31, 2013. A material weakness is defined as a deficiency, or combination of deficiencies,
in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our consolidated
financial statements will not be prevented or detected on a timely basis. As a result of these material weaknesses, our management
concluded that our internal control over financial reporting was not effective based on criteria set forth by the Committee of
Sponsoring Organization of the Treadway Commission in 2013 Internal Control—Integrated Framework. We have developed proposed
actions aimed at remediating some of these material weaknesses. If our remedial measures are insufficient to address the material
weaknesses, or if additional material weaknesses or significant deficiencies in our internal control are discovered or occur in
the future, there may be an increased likelihood that our consolidated financial statements contain material misstatements. If
that were to occur, we could be required to restate our financial results, which could lead to substantial additional costs for
accounting and legal fees and litigation. In addition, even if we are successful in strengthening our controls and procedures,
in the future those controls and procedures may not be adequate to prevent or identify irregularities or errors or to facilitate
the fair presentation of our consolidated financial statements. If we fail to achieve and maintain the adequacy of our internal
controls in accordance with applicable standards, we may be unable to conclude that we have effective internal controls over financial
reporting. If we cannot produce reliable financial reports, our business and financial condition could be harmed, investors could
lose confidence in our reported financial information, or the market price of our stock could decline significantly. Moreover,
our reputation with lenders, investors, securities analysts and others may be adversely affected.
We may become involved in litigation and administrative
proceedings that may materially affect us.
From time to time, we may become involved in various legal proceedings
relating to matters incidental to the ordinary course of our business, including commercial, employment, class action, whistleblower
and other litigation and claims, and governmental and other regulatory investigations and proceedings. Such matters can be time-consuming,
divert management's attention and resources and cause us to incur significant expenses. Furthermore, because litigation is inherently
unpredictable, there can be no assurance that the results of any of these actions will not have a material adverse effect on our
business, results of operations or financial condition.
We rely significantly on information technology and any
failure, inadequacy, interruption or security lapse of that technology, including any cyber security incidents, could harm our
ability to operate our business effectively.
We maintain sensitive data pertaining to our Company on our
computer networks, including information about our research and development activities, our intellectual property and other proprietary
business information. Our internal computer systems and those of third parties with which we contract may be vulnerable to damage
from cyber attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical
failures, despite the implementation of security measures. System failures, accidents or security breaches could cause interruptions
to our operations, including material disruption of our research and development activities, result in significant data losses
or theft of our intellectual property or proprietary business information, and could require substantial expenditures to remedy.
To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications or inappropriate
disclosure of confidential or proprietary information, we could incur liability and our research and development programs could
be delayed, any of which would harm our business and operations.
Risks Related to the Development and
Commercialization of our Product Candidates
Our current business plan is dependent on the success
of one product candidate.
Our business is currently focused almost entirely on the development
and commercialization of one product candidate, AC5. Our reliance on one primary product candidate means that, if we are not able
to obtain regulatory approvals and market acceptance of that product, our chances for success will be significantly reduced. We
are also less likely to withstand competitive pressures if any of our competitors develops and obtains regulatory approval or certification
for a similar product faster than we can or that is otherwise more attractive to the market than AC5. Our current dependence on
one product candidate increases the risk that our business will fail if our development efforts for that product candidate experience
delays or other obstacles or are otherwise not successful.
The Chemistry, Manufacturing and Control (“CMC”)
process may be challenging.
Because of the complexity of our lead product candidate, the
CMC process may be difficult to complete successfully within the parameters required by the FDA or its foreign counterparts. Peptide
formulation optimization is particularly challenging, and any delays could negatively impact our anticipated clinical trial and
subsequent commercialization timeline. Furthermore, we have, and the third parties with which we may establish relationships
may also have, limited experience with attempting to commercialize a self-assembling peptide as a medical device, which increases
the risks associated with completing the CMC process successfully, on time, or within the projected budget. Failure to complete
the CMC process successfully would impact our ability to start a clinical trial and could severely limit the long-term viability
of our business.
Our principal product candidate is inherently risky because
it is based on novel technologies.
We are subject to the risks of failure inherent in the development
of products based on new technologies. The novel nature of AC5 creates significant challenges with respect to product development
and optimization, engineering, manufacturing, scale-up, quality systems, pre-clinical
in vitro
and
in vivo
testing,
government regulation and approval, third-party reimbursement and market acceptance. Our failure to overcome any one of those challenges
could harm our operations, ability to commence and/or complete a clinical trial, and overall chances for success.
Compliance with governmental regulations regarding the
treatment of animals used in research could increase our operating costs, which would adversely affect the commercialization of
our technology.
The Animal Welfare Act (“AWA”) is the federal law
that covers the treatment of certain animals used in research. Currently, the AWA imposes a wide variety of specific regulations
that govern the humane handling, care, treatment and transportation of certain animals by producers and users of research animals,
most notably relating to personnel, facilities, sanitation, cage size, and feeding, watering and shipping conditions. Third parties
with whom we contract are subject to registration, inspections and reporting requirements under the AWA. Furthermore, some states
have their own regulations, including general anti-cruelty legislation, which establish certain standards in handling animals.
Comparable rules, regulations, and or obligations exist in many foreign jurisdictions. If our contractors or we fail to comply
with regulations concerning the treatment of animals used in research, we may be subject to fines and penalties and adverse publicity,
and our operations could be adversely affected.
If the FDA or similar foreign agencies or intermediaries
impose requirements or an alternative product classification more onerous than we anticipate, our business could be adversely affected.
The development plan for our lead product candidate is based
on our anticipation of pursuing the medical device regulatory pathway. However, the FDA and other applicable foreign agencies will
have authority to finally determine the regulatory route for our product candidates in their jurisdictions. If the FDA or similar
foreign agencies or intermediaries deem our product to be a member of a category other than a medical device, such as a drug or
biologic, or impose additional requirements on our pre-clinical and clinical development than we presently anticipate, financing
needs would increase, the timeline for product approval would lengthen, the program complexity and resource requirements world
increase, and the probability of successfully commercializing a product would decrease. Any or all of those circumstances would
materially adversely affect our business.
If we are not able to secure and maintain relationships
with third parties that are capable of conducting clinical trials on our product candidates, our product development efforts could
be adversely impacted.
Our management has limited experience in conducting preclinical
development activities and clinical trials. As a result, we have relied and will need to continue to rely on research institutions
and other third party clinical investigators to conduct our preclinical and clinical trials. If we are unable to reach agreement
with qualified research institutions and clinical investigators on acceptable terms, or if any resulting agreement is terminated
prior to the completion of our clinical trials, then our product development efforts could be materially delayed or otherwise harmed.
Further, our reliance on third parties to conduct our clinical trials will provide us with less control over the timing and cost
of those trials and the ability to recruit suitable subjects to participate in the trials. Moreover, the FDA and other regulatory
authorities require that we comply with standards, commonly referred to as good clinical practices (“GCP”), for conducting,
recording and reporting the results of our preclinical development activities and our clinical trials, to assure that data and
reported results are credible and accurate and that the rights, safety and confidentiality of trial participants are protected.
Additionally, we and any third party contractor performing preclinical and clinical studies are subject to regulations governing
the treatment of human and animal subjects in performing those studies. Our reliance on third parties that we do not control does
not relieve us of those responsibilities and requirements. If those third parties do not successfully carry out their contractual
duties, meet expected deadlines or conduct our preclinical development activities or clinical trials in accordance with regulatory
requirements or stated protocols, we may not be able to obtain, or may be delayed in obtaining, regulatory approvals for our product
candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates. Any
of those circumstances would materially harm our business and prospects.
Any clinical trials that are planned or are conducted
on our product candidates may not start or may fail.
Clinical trials are lengthy, complex and extremely expensive
processes with uncertain expenditures and results and frequent failures. Any clinical trials that are planned or which commence
for any of our product candidates could be delayed, limited or fail for a number of reasons, including if:
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the FDA or other regulatory authorities do not grant permission to proceed or place a trial on clinical hold due to safety
concerns or other reasons;
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sufficient suitable subjects do not enroll or remain in our trials;
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we fail to produce necessary amounts of product candidate;
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subjects experience an unacceptable rate of efficacy of the product candidate;
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subjects experience an unacceptable rate or severity of adverse side effects, demonstrating a lack of safety of the product
candidate;
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any portion of the trial or related studies produces negative or inconclusive results or other adverse events;
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reports from preclinical or clinical testing on similar technologies and products raise safety and/or efficacy concerns;
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third-party clinical investigators lose their licenses or permits necessary to perform our clinical trials, do not perform
their clinical trials on their anticipated schedule or consistent with the clinical trial protocol, GCP or regulatory requirements,
or other third parties do not perform data collection and analysis in a timely or accurate manner;
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inspections of clinical trial sites by the FDA or an institutional review board (“IRB”) or other applicable regulatory
authorities find violations that require us to undertake corrective action, suspend or terminate one or more testing sites, or
prohibit us from using some or all of the resulting data in support of our marketing applications with the FDA or other applicable
agencies;
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manufacturing facilities of our third party manufacturers are ordered by the FDA or other government or regulatory authorities
to temporarily or permanently shut down due to violations of current good manufacturing practices (“cGMP”) or other
applicable requirements;
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third-party contractors become debarred or suspended or otherwise penalized by FDA or other government or regulatory authorities
for violations of regulatory requirements;
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the FDA or other regulatory authorities impose requirements on the design, structure or other features of the clinical trials
for our product candidates that we and/or our third party contractors are unable to satisfy;
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one or more IRBs refuses to approve, suspends or terminates a trial at an investigational site, precludes enrollment of additional
subjects, or withdraws its approval of the trial;
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the FDA or other regulatory authorities seek the advice of an advisory committee of physician and patient representatives that
may view the risks of our product candidates as outweighing the benefits;
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the FDA or other regulatory authorities require us to expand the size and scope of the clinical trials, which we may not be
able to do; or
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the FDA or other regulatory authorities impose prohibitive post-marketing restrictions on any of our product candidates that
attain regulatory approval.
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Any delay or failure of one or more of our clinical trials may
occur at any stage of testing. Any such delay could cause our development costs to materially increase, and any such failure could
significantly impair our business plans, which would materially harm our financial condition and operations.
We cannot market and sell any product candidate in the
U.S. or in any other country or region if we fail to obtain the necessary regulatory approvals or certifications from applicable
government agencies.
We cannot sell our product candidates in any country until regulatory
agencies grant marketing approval or other required certifications. The process of obtaining such approval is lengthy, expensive
and uncertain. If we are able to obtain such approvals for our lead product candidate or any other product candidate we may pursue,
which we may never be able to do, it would likely be a process that takes many years to achieve.
To obtain marketing approvals in the U.S. for our product candidates,
we must, among other requirements, complete carefully controlled and well-designed clinical trials sufficient to demonstrate to
the FDA that the product candidate is safe and effective for each indication for which we seek approval. As described above, many
factors could cause those trials to be delayed or to fail.
We believe that the pathway to marketing approval in the U.S.
for our lead product candidate will likely require the process of FDA Premarket Approval (“PMA”) for the product, which
is based on novel technologies and likely will be classified as a Class III medical device. This approval pathway can be lengthy
and expensive, and is estimated to take from one to three years or longer from the time the PMA application is submitted to the
FDA until approval is obtained, if approval can be obtained at all.
Similarly, to obtain approval to market our product candidates
outside of the U.S., we will need to submit clinical data concerning our product candidates to and receive marketing approval or
other required certifications from governmental or other agencies in those countries, which in certain countries includes approval
of the price we intend to charge for a product. For instance, in order to obtain the certification needed to market our lead product
candidate in Europe, we believe that we will need to obtain a CE mark for the product, which entails scrutiny by applicable regulatory
agencies and bears some similarity to the PMA process, including completion of one or more successful clinical trials.
We may encounter delays or rejections if changes occur in regulatory
agency policies, if difficulties arise within regulatory or related agencies such as, for instance, any delays in their review
time, or if reports from preclinical and clinical testing on similar technology or products raise safety and/or efficacy concerns
during the period in which we develop a product candidate or during the period required for review of any application for marketing
approval or certification.
Any difficulties we encounter during the approval or certification
process for any of our product candidates would have a substantial adverse impact on our operations and financial condition and
could cause our business to fail.
Any product for which we obtain required regulatory approvals
could be subject to post-approval regulation, and we may be subject to penalties if we fail to comply with such post-approval requirements.
Any product for which we are able to obtain marketing approval
or other required certifications, and for which we are able to obtain approval of the manufacturing processes, post-approval clinical
data, labeling, advertising and promotional activities for such product, will be subject to continual requirements of and review
by the FDA and comparable foreign regulatory authorities, including through periodic inspections. These requirements include, without
limitation, submissions of safety and other post-marketing information and reports, registration requirements, cGMP requirements
relating to quality control, quality assurance and corresponding maintenance of records and documents. Maintaining compliance with
any such regulations that may be applicable to us or our product candidates in the future would require significant time, attention
and expense. Even if marketing approval of a product is granted, the approval may be subject to limitations on the indicated uses
for which the product may be marketed or other conditions of approval, or may contain requirements for costly and time consuming
post-marketing approval testing and surveillance to monitor the safety or efficacy of the product. Discovery after approval of
previously unknown problems with any approved product candidate or related manufacturing processes, or failure to comply with regulatory
requirements, may result in consequences to us such as:
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restrictions on the marketing or distribution of a product, including refusals to permit the import or export of the product;
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warning letters from governmental agencies;
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the requirement to include warning labels on the products;
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withdrawal or recall of the products from the market;
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refusal by the FDA or other regulatory agencies to approve pending applications or supplements to approved applications that
we may submit;
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suspension of any ongoing clinical trials;
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fines, restitution or disgorgement of profits or revenue;
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suspension or withdrawal of marketing approvals or certifications; or
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civil or criminal penalties.
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If any of our product candidates achieves required regulatory
marketing approvals or certifications in the future, the subsequent occurrence of any such post-approval consequences would materially
adversely affect our business and operations.
Current or future legislation may make it more difficult
and costly for us to obtain marketing approval or other certifications of our product candidates.
In 2007, the Food and Drug Administration Amendments Act of
2007 (the “FDAAA”) was adopted. This legislation grants significant powers to the FDA, many of which are aimed at assuring
the safety of medical products after approval. For example, the FDAAA grants the FDA authority to impose post-approval clinical
study requirements, require safety-related changes to product labeling and require the adoption of complex risk management plans.
Pursuant to the FDAAA, the FDA may require that a new product be used only by physicians with specialized training, only in specified
health care settings, or only in conjunction with special patient testing and monitoring. The legislation also includes requirements
for disclosing clinical study results to the public through a clinical study registry, and renewed requirements for conducting
clinical studies to generate information on the use of products in pediatric patients. Under the FDAAA, companies that violate
these laws are subject to substantial civil monetary penalties. The requirements and changes imposed by the FDAAA, or any other
new legislation, regulations or policies that grant the FDA or other regulatory agencies additional authority that further complicates
the process for obtaining marketing approval and/or further restricts or regulates post-marketing approval activities, could make
it more difficult and more costly for us to obtain and maintain approval of any of our product candidates.
Public perception of ethical and social issues may limit
or discourage the type of research we conduct.
Our clinical trials will involve human subjects, and we and
third parties with whom we contract also conduct research involving animal subjects. Governmental authorities could, for public
health or other purposes, limit the use of human or animal research or prohibit the practice of our technology. Further, ethical
and other concerns about our or our third party contractors’ methods, particularly the use of human subjects in clinical
trials or the use of animal testing, could delay our research and preclinical and clinical trials, which would adversely affect
our business and financial condition.
Use of third parties to manufacture our product candidates
may increase the risk that preclinical development, clinical development and potential commercialization of our product candidates
could be delayed, prevented or impaired.
We have limited personnel with experience in medical device
development and manufacturing, do not own or operate manufacturing facilities, and generally lack the resources and the capabilities
to manufacture any of our product candidates on a clinical or commercial scale. We currently intend to outsource all or most of
the clinical and, commercial manufacturing and packaging of our product candidates to third parties. However, we have not established
long-term agreements with any third party manufacturers for the supply of any of our product candidates. There are a limited number
of manufacturers that operate under cGMP regulations and that are capable of and willing to manufacture our lead product candidate
utilizing the manufacturing methods that are required to produce that product candidate, and our product candidates will compete
with other product candidates for access to qualified manufacturing facilities. If we have difficulty locating third party manufacturers
to develop our product candidates for preclinical and clinical work, then our product development programs will experience delays
and otherwise suffer. We may also be unable to enter into agreements for the commercial supply of products with third party manufacturers
in the future, or may be unable to do so when needed or on acceptable terms. Any such events could materially harm our business.
Reliance on third party manufacturers entails risks to our business,
including without limitation:
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the failure of the third party to maintain regulatory compliance, quality assurance, and general expertise in advanced manufacturing
techniques and processes that may be necessary for the manufacture of our product candidates;
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limitations on supply availability resulting from capacity and scheduling constraints of the third parties;
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failure of the third party manufacturers to meet the demand for the product candidate, either from future customers or for
preclinical or clinical trial needs;
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the possible breach of the manufacturing agreement by the third party; and
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the possible termination or non-renewal of the agreement by the third party at a time that is costly or inconvenient for us.
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The failure of any of our contract manufacturers to maintain
high manufacturing standards could result in harm to clinical trial participants or patients using the products. Such failure could
also result in product liability claims, product recalls, product seizures or withdrawals, delays or failures in testing or delivery,
cost overruns or other problems that could seriously harm our business or profitability. Further, our contract manufacturers will
be required to adhere to FDA and other applicable regulations relating to manufacturing practices. Those regulations cover all
aspects of the manufacturing, testing, quality control and recordkeeping relating to our product candidates and any products that
we may commercialize in the future. The failure of our third party manufacturers to comply with applicable regulations could result
in sanctions being imposed on us, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing
approval or other required certifications of our product candidates, delays, suspension or withdrawal of approvals, license revocation,
seizures or recalls of product candidates, operating restrictions and criminal prosecutions, any of which could significantly and
adversely affect our business, financial condition and operations.
Materials necessary to manufacture our product candidates
may not be available on commercially reasonable terms, or at all, which may delay or otherwise hinder the development and commercialization
of those product candidates.
We will rely on the manufacturers of our product candidates
to purchase from third party suppliers the materials necessary to produce the compounds for preclinical and clinical studies, and
may continue to rely on those suppliers for commercial distribution if we obtain marketing approval or other required certifications
for any of our product candidates. The materials to produce our products may not be available when needed or on commercially reasonable
terms, and the prices for such materials may be susceptible to fluctuations. We do not have any control over the process or timing
of the acquisition of these materials by our manufacturers. Moreover, we currently do not have any agreements relating to the commercial
production of any of these materials. If these materials cannot be obtained for our preclinical and clinical studies, product testing
and potential regulatory approval of our product candidates would be delayed, which would significantly impact our ability to develop
our product candidates and materially adversely affect our ability to meet our objectives and obtain operations success.
We may not be successful in maintaining or establishing
collaborations, which could adversely affect our ability to develop and, if required regulatory approvals are obtained, commercialize,
our product candidates.
We intend to collaborate with physicians, patient advocacy groups,
foundations, government agencies, and/or other third parties to assist with the development of our product candidates. If required
regulatory approvals are obtained for any of our product candidates, then we may consider entering into selective collaboration
arrangements with medical technology, pharmaceutical or biotechnology companies and/or seek to establish strategic relationships
with marketing partners for the development, sale, marketing and/or distribution of our products within or outside of the U.S.
If we elect to seek collaborators in the future but are unable to reach agreements with suitable collaborators, then we may fail
to meet our business objectives for the affected product or program. Moreover, collaboration arrangements are complex and time
consuming to negotiate, document and implement, and we may not be successful in our efforts, if any, to establish and implement
collaborations or other alternative arrangements. The terms of any collaborations or other arrangements that we establish may not
be favorable to us, and the success of any such collaborations will depend heavily on the efforts and activities of our collaborators.
Any failure to engage successful collaborators could cause delays in our product development and/or commercialization efforts,
which could harm our financial condition and operational results.
We compete with other pharmaceutical and medical device
companies, including companies that may develop products that make our product candidates less attractive or obsolete.
The medical device, pharmaceutical and biotechnology industries
are highly competitive. If our product candidates become available for commercial sale, we will compete in that competitive marketplace.
There are several products on the market or in development that could be competitors with our lead product candidate. While our
management, which is familiar with these other products, believes that our lead product candidate could be safer and possibly more
effective than those competitors, those beliefs may be wrong. Further, most of our competitors have greater resources or capabilities
and greater experience in the development, approval and commercialization of medical devices or other products than we do. We may
not be able to compete successfully against them. We also compete for funding with other companies in our industry that are focused
on discovering and developing novel improvements in surgical bleeding prevention.
We anticipate that competition in our industry will increase.
In addition, the healthcare industry is characterized by rapid technological change, resulting in new product introductions and
other technological advancements. Our competitors may develop and market products that render our lead product candidate or any
future product candidate we may seek to develop non-competitive or otherwise obsolete. Any such circumstances could cause our operations
to suffer.
If we fail to generate market acceptance of our product
candidates and establish programs to educate and train surgeons as to the distinctive characteristics of our product candidates,
we will not be able to generate revenues on our product candidates.
Acceptance in the marketplace of our lead product candidate
depends in part on our and our third party contractors’ ability to establish programs for the training of surgeons in the
proper usage of that product candidate, which will require significant expenditure of resources. Convincing surgeons to dedicate
the time and energy necessary to properly train to use new products and techniques is challenging, and we may not be successful
in those efforts. If surgeons are not properly trained, they may ineffectively use our product candidates. Such misuse could result
in unsatisfactory patient outcomes, patient injury, negative publicity or lawsuits against us. Accordingly, even if our product
candidates are superior to alternative treatments, our success will depend on our ability to gain and maintain market acceptance
for those product candidates among certain select groups of the population and develop programs to effectively train them to use
those products. If we fail to do so, we will not be able to generate revenue from product sales and our business, financial condition
and results of operations will be adversely affected.
We face uncertainty related to pricing, reimbursement
and healthcare reform, which could reduce our potential revenues.
If our product candidates are approved for commercialization,
any sales will depend in part on the availability of coverage and reimbursement from third-party payors such as government insurance
programs, including Medicare and Medicaid, private health insurers, health maintenance organizations and other healthcare related
organizations. If our product candidates obtain marketing approval, pricing and reimbursement may be uncertain. Both the federal
and state governments in the U.S. and foreign governments continue to propose and pass new legislation affecting coverage and reimbursement
policies, which are designed to contain or reduce the cost of healthcare. Further, federal, state and foreign healthcare proposals
and reforms could limit the prices that can be charged for the product candidates that we may develop, which may limit our commercial
opportunity. Adoption of our product candidates by the medical community may be limited if doctors and hospitals do not receive
adequate partial or full reimbursement for use of our products, if any are commercialized. In some foreign jurisdictions, marketing
approval or allowance could be dependent upon pre-marketing price negotiations. As a result, any denial of private or government
payor coverage or inadequate reimbursement for procedures performed using our products, before or upon commercialization, could
harm our business and reduce our prospects for generating revenue.
In addition, the U.S. Congress recently adopted legislation
regarding health insurance. As a result of this new legislation, substantial changes could be made to the current system for paying
for healthcare in the U.S., including modifications to the existing system of private payors and government programs, such as Medicare,
Medicaid and State Children’s Health Insurance Program, creation of a government-sponsored healthcare insurance source, or
some combination of those, as well as other changes. Restructuring the coverage of medical care in the U.S. could impact reimbursement
for medical devices such as our product candidates. If reimbursement for our approved product candidates, if any, is substantially
less than we expect, or rebate obligations associated with them are substantially increased, our business could be materially and
adversely impacted.
The use of our product candidates in human subjects may
expose us to product liability claims, and we may not be able to obtain adequate insurance or otherwise defend against any such
claims.
We face an inherent risk of product liability claims and do
not currently have product liability insurance coverage. We will need to obtain insurance coverage if and when we begin clinical
trials and commercialization of any of our product candidates. We may not be able to obtain or maintain product liability insurance
on acceptable terms with adequate coverage. If claims against us exceed any applicable insurance coverage we may obtain, then our
business could be adversely impacted. Regardless of whether we would be ultimately successful in any product liability litigation,
such litigation could consume substantial amounts of our financial and managerial resources, which could significantly harm our
business.
Risks Related to our Intellectual
Property
If we are unable to obtain and maintain protection for
our intellectual property rights, the value of our technology and products will be adversely affected.
Our success will depend in large part on our ability to obtain
and maintain protection in the U.S. and other countries for the intellectual property rights covering or incorporated into our
technology and products. The ability to obtain patents covering technology in the field of medical devices generally is highly
uncertain and involves complex legal, technical, scientific and factual questions. We may not be able to obtain and maintain patent
protection relating to our technology or products. Even if issued, patents issued or licensed to us may be challenged, narrowed,
invalidated, held to be unenforceable or circumvented, or determined not to cover our product candidates or our competitors’
products, which could limit our ability to stop competitors from marketing identical or similar products. Further, we cannot be
certain that we were the first to make the inventions claimed in the patents we own or license, or that protection of the inventions
set forth in those patents was the first to be filed in the U.S. Third parties that have filed patents or patent applications covering
similar technologies or processes may challenge our claim of sole right to use the intellectual property covered by the patents
we own or exclusively license. Moreover, changes in applicable intellectual property laws or interpretations thereof in the U.S.
and other countries may diminish the value of our intellectual property rights or narrow the scope of our patent protection. Any
failure to obtain or maintain adequate protection for the intellectual property rights we use would materially harm our business,
product development programs and prospects.
In addition, our proprietary information, trade secrets and
know-how are important components of our intellectual property rights. We seek to protect our proprietary information, trade secrets,
know-how and confidential information, in part, with confidentiality agreements with our employees, corporate partners, outside
scientific collaborators, sponsored researchers, consultants and other advisors. We also have invention or patent assignment agreements
with our employees and certain consultants and advisors. If our employees or consultants breach those agreements, we may not have
adequate remedies for any of those breaches. In addition, our proprietary information, trade secrets and know-how may otherwise
become known to or be independently developed by others. Enforcing a claim that a party illegally obtained and is using our proprietary
information, trade secrets and know-how is difficult, expensive and time consuming, and the outcome is unpredictable. In addition,
courts outside the U.S. may be less willing to protect trade secrets. Costly and time consuming litigation could be necessary to
seek to enforce and determine the scope of our intellectual property rights, and failure to obtain or maintain protection thereof
could adversely affect our competitive business position and results of operations.
If we lose certain intellectual property rights owned
by third parties and licensed to us, our business could be materially harmed.
We have entered into certain in-license agreements with MIT
and with certain other third parties, and may seek to enter into additional in-license agreements relating to other intellectual
property rights in the future. To the extent we and our product candidates rely heavily on any such in-licensed intellectual property,
we are subject to our and the counterparty’s compliance with the terms of such agreements in order to maintain those rights.
Presently, we, our lead product candidate and our business plans are dependent on the patent and other intellectual property rights
that are licensed to us under our license agreement with MIT. Although that agreement has a durational term through the life of
the licensed patents, it also imposes certain diligence, capital raising, and other obligations on us, our breach of which could
permit MIT to terminate the agreement. Further, we are responsible for all patent prosecution and maintenance fees under that agreement,
and a failure to pay such fees on a timely basis could also entitle MIT to terminate the agreement. Any failure by us to satisfy
our obligations under our license agreement with MIT or any other dispute or other issue relating to that agreement could cause
us to lose some or all of our rights to use certain intellectual property that is material to our business and our lead product
candidate, which would materially harm our product development efforts and could cause our business to fail.
If we infringe or are alleged to infringe the intellectual
property rights of third parties, our business and financial condition could suffer.
Our research, development and commercialization activities,
as well as any product candidates or products resulting from those activities, may infringe or be accused of infringing a patent
or other intellectual property under which we do not hold a license or other rights. Third parties may own or control those patents
or other rights in the U.S. or abroad. The third parties that own or control those intellectual property rights could bring claims
against us that would cause us to incur substantial time, expense, and diversion of management attention. If a patent or other
intellectual property infringement suit were brought against us, we could be forced to stop or delay research, development, manufacturing
or sales, if any, of the applicable product or product candidate that is the subject of the suit. In order to avoid or settle potential
claims with respect to any of the patent or other intellectual property rights of third parties, we may choose or be required to
seek a license from a third party and be required to pay license fees or royalties or both. Any such license may not be available
on acceptable terms, or at all. Even if we or our future collaborators were able to obtain a license, the rights granted to us
or them could be non-exclusive, which could result in our competitors gaining access to the same intellectual property rights and
materially negatively affecting the commercialization potential of our planned products. Ultimately, we could be prevented from
commercializing one or more product candidates, or be forced to cease some aspects of our business operations, if, as a result
of actual or threatened infringement claims, we are unable to enter into licenses on acceptable terms or at all or otherwise settle
such claims. Further, if any such claims were successful against us, we could be forced to pay substantial damages. Any of those
results could significantly harm our business, prospects and operations.
Risks Related to the Merger and Ownership
of our Common Stock
There is not now, and there may not ever be, an active
market for our common stock, which trades in the over-the-counter market in low volumes and at volatile prices.
There currently is a limited market for our common stock. Although
our common stock is quoted on the OTCQB, an over-the-counter quotation system, trading of our common stock is extremely limited
and sporadic and generally at very low volumes. Further, the price at which our common stock may trade is volatile and we expect
that it will continue to fluctuate significantly in response to various factors, many of which are beyond our control. The stock
market in general, and securities of small-cap companies driven by novel technologies in particular, has experienced extreme price
and volume fluctuations in recent years. Continued market fluctuations could result in further volatility in the price at which
our common stock may trade, which could cause its value to decline. To the extent we seek to raise capital in the future through
the issuance of equity, those efforts could be limited or hindered by low and/or volatile market prices for our common stock.
We do not now, and are not expected to in the foreseeable future,
meet the initial listing standards of the Nasdaq Stock Market or any other national securities exchange. We presently anticipate
that our common stock will continue to be quoted on the OTCQB or another over-the-counter quotation system. In those venues, our
stockholders may find it difficult to obtain accurate quotations as to the market value of their shares of our common stock, and
may find few buyers to purchase their stock and few market makers to support its price.
A more active market for our common stock may never develop.
As a result, investors must bear the economic risk of holding their shares of our common stock for an indefinite period of time.
Our common stock is a “penny stock.”
The SEC has adopted regulations that generally define “penny
stock” as an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. The
market price of our common stock is, and is expected to continue to be in the near term, less than $5.00 per share and is
therefore a “penny stock.” Brokers and dealers effecting transactions in “penny stock” must disclose certain
information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably
suitable to purchase the securities. Those rules may restrict the ability of brokers or dealers to sell our common stock and may
affect the ability of our stockholders to sell their shares of our common stock. In addition, if our common stock continues to
be quoted on the OTCQB as we expect, then our stockholders may find it difficult to obtain accurate quotations for our stock, and
may find few buyers to purchase our stock and few market makers to support its price.
If we issue additional shares in the future, our existing
shareholders will be diluted.
Our articles of incorporation authorize the issuance of up to
300,000,000 shares of common stock. Upon the closing of the Private Placement Financing, we issued an aggregate of 11,400,000 shares
of our common stock, which equals approximately 16% of our currently issued and outstanding common stock. Upon the closing of the
Private Placement Financing, we also issued Warrants to acquire up to an additional 34,200,000 shares of our common stock, which,
assuming no adjustments to and the full exercise of the Warrants and no other issuances of our common stock, would equal approximately
32% of our then-issued and outstanding common stock. In addition to capital raising activities, other possible business and financial
uses for our authorized common stock include, without limitation, future stock splits, acquiring other companies, businesses or
products in exchange for shares of common stock, issuing shares of our common stock to partners in connection with strategic alliances,
attracting and retaining employees by the issuance of additional securities under our various equity compensation plans, or other
transactions and corporate purposes that our Board of Directors deems are in the Company’s best interest. Additionally, shares
of common stock could be used for anti-takeover purposes or to delay or prevent changes in control or management of the Company.
We cannot provide assurances that any issuances of common stock will be consummated on favorable terms or at all, that they will
enhance stockholder value, or that they will not adversely affect our business or the trading price of our common stock. The issuance
of any such shares will reduce the book value per share and may contribute to a reduction in the market price of the outstanding
shares of our common stock. If we issue any such additional shares, such issuance will reduce the proportionate ownership and voting
power of all current shareholders. Further, such issuance may result in a change of control of our corporation.
Certain terms of the Warrants could result in additional
dilution to our existing stockholders.
The number of shares of our common stock into which each of
the Warrants issued in connection with the Private Placement Financing is exercisable and the exercise price therefore are subject
to adjustment as set forth in the Warrants, including, without limitation, adjustment to the exercise price of the Warrants in
the event of certain subsequent issuances and sales of shares of our common stock (or securities convertible or exercisable into
shares of our common stock) at a price per share lower than the then-effective exercise price of the Warrants, in which case the
exercise price of the Warrants shall be adjusted to equal such lower price per share, as well as customary adjustments in the event
of stock dividends and splits, subsequent rights offerings and pro rata distributions to our common stockholders. In the
event any such adjustment is triggered, the Warrants could become exercisable for a greater number of shares of our common stock
and thereby dilute the ownership of our other stockholders if those Warrants are exercised. Depending on the terms of any subsequent
issuance of securities or other circumstance that might trigger such an adjustment and the number of Warrants that are exercised,
the amount of any such dilution could be significant.
Future sales of our common stock or rights to purchase
common stock, or the perception that such sales could occur, could cause our stock price to fall.
After giving effect to the funds raised in the Private Placement
Financing, we expect that significant additional capital will be needed in the near-term to continue our planned operations. To
raise capital, we may sell common stock, convertible securities or other equity securities in one or more transactions at prices
and in a manner we determine from time to time. Any such sales of our common stock by us or re-sales of our common stock by our
existing stockholders could cause the market price of our common stock to decline.
Upon the effectiveness of the registration statement of which
this prospectus forms a part, approximately 16% of our currently issued and outstanding common stock will become registered and
freely tradable, and, assuming no adjustments to and the full exercise of the Warrants and no other issuances of our common stock,
up to 32% of our then-issued and outstanding common stock would become registered and freely tradable. The sales of such shares
in the market, or the perception that such sales could occur following the effectiveness of the registration statement of which
this prospectus forms a part, could cause our stock price to fall. Additionally, pursuant to the 2013 Plan, we are authorized to
grant equity awards to our employees, directors and consultants for up to an aggregate of 10,231,197 shares of our common stock,
and there are additional currently outstanding warrants to acquire up to 4,145,985 shares of our common stock. Any future grants
of options, warrants or other securities exercisable or convertible into our common stock, or the exercise or conversion of such
shares, and any sales of such shares in the market, could have an adverse effect on the market price of our common stock.
FINRA sales practice requirements may limit a stockholder’s
ability to buy and sell our stock.
In addition to the “penny stock” rules described
above, FINRA has adopted rules that require that, in recommending an investment to a customer, a broker-dealer must have reasonable
grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities
to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s
financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA has indicated
its belief that there is a high probability that speculative low priced securities will not be suitable for at least some customers.
These FINRA requirements make it more difficult for broker-dealers to recommend that at least some of their customers buy our common
stock, which may limit the ability of our stockholders to buy and sell our common stock and could have an adverse effect on the
market for our shares.
There may be additional risks because we recently completed
a reverse merger transaction.
Additional risks may exist because we recently
completed a “reverse merger” transaction. Securities analysts of major brokerage firms may not provide coverage of
the Company following the Merger because there may be little incentive to brokerage firms to recommend the purchase of our common
stock. There may also be increased scrutiny by the SEC and other government agencies and holders of our securities due to the
nature of the transaction, as there has been increased focus on transactions such as the Merger in recent years. Further, since
the Company existed as a “shell company” under applicable rules of the SEC up until the closing of the Merger on June
26, 2013, there will be certain restrictions and limitations on the Company going forward relating to any potential future issuances
of additional securities to raise funding and compliance with applicable SEC rules and regulations.
The Company may have material liabilities that were not
discovered before the closing of the Merger.
The Company may have material liabilities that were not discovered
before the consummation of the Merger. We could experience losses as a result of any such unasserted liabilities are eventually
found to be incurred, which could materially harm our business and financial condition. Although the Merger Agreement contained
customary representations and warranties from the Company concerning its assets, liabilities, financial condition and affairs,
there may be limited or no recourse against the Company’s prior owners or principals in the event those prove to be untrue.
As a result, the stockholders of the Company bear risks relating to any such unknown or unasserted liabilities.
Certain of our directors and officers own a significant
percentage of our capital stock as a result of the Merger and are able to exercise significant influence over the Company.
Certain of our directors and executive officers own a significant
percentage of our outstanding capital stock. Dr. Terrence W. Norchi, our President, Chief Executive Officer and a director, and
Dr. Avtar Dhillon, the Chairman of our Board of Directors, collectively hold or control approximately 25% of our outstanding shares
of common stock. Accordingly, these members of our Board of Directors and management team have substantial voting power to approve
matters requiring stockholder approval, including without limitation the election of directors, and have significant influence
over our affairs. This concentration of ownership could have the effect of delaying or preventing a change in control of our Company,
even if such a change in control would be beneficial to our stockholders.
The elimination of monetary liability against our directors
and officers under Nevada law and the existence of indemnification rights held by our directors, officers and employees may result
in substantial expenditures by us and may discourage lawsuits against our directors, officers and employees.
Our articles of incorporation eliminate the personal liability
of our directors and officers to our Company and our stockholders for damages for breach of fiduciary duty as a director or officer
to the extent permissible under Nevada law. Further, our amended and restated bylaws provide that we are obligated to indemnify
any of our directors or officers to the fullest extent authorized by Nevada law and, subject to certain conditions, advance the
expenses incurred by any director or officer in defending any action, suit or proceeding prior to its final disposition. Those
indemnification obligations could result in our Company incurring substantial expenditures to cover the cost of settlement or damage
awards against our directors or officers, which we may be unable to recoup. These provisions and resultant costs may also discourage
us from bringing a lawsuit against any of our current or former directors or officers for breaches of their fiduciary duties, and
may similarly discourage the filing of derivative litigation by our stockholders against our directors and officers even if such
actions, if successful, might otherwise benefit us or our stockholders.
We are subject to the
reporting requirements
of federal securities laws, compliance with which involves significant time, expense and expertise.
We are a public reporting company in the U.S., and, accordingly,
are subject to the information and reporting requirements of the Exchange Act and other federal securities laws, including the
obligations imposed by the Sarbanes-Oxley Act. The costs associated with preparing and filing annual, quarterly and current reports,
proxy statements and other information with the SEC in the ordinary course, as well as preparing and filing audited financial statements,
have caused, and could continue to cause, our operational expenses to remain at higher levels or continue to increase.
Our present management team has only limited experience managing
public companies. It will be time consuming, difficult and costly for our management team to acquire additional expertise and experience
in operating a public company, and to develop and implement the internal controls and reporting procedures required by Sarbanes-Oxley
and other applicable securities laws. We will need to hire additional financial reporting, internal controls, accounting
and other finance staff in order to develop and implement appropriate internal controls and reporting procedures as required by
applicable securities regulations for public companies, which we may not be able to do on a timely basis or at all.
Shares of our common stock that have not been registered
under federal securities laws are subject to resale restrictions imposed by Rule 144, including those set forth in Rule 144(i)
which apply to a former “shell company.” In addition, any shares of our common stock that are held by affiliates, including
any that are registered, will be subject to the resale restrictions of Rule 144.
Pursuant to Rule 144 under the Securities Act, a “shell
company” is defined as a company that has no or nominal operations and either no or nominal assets; assets consisting solely
of cash and cash equivalents; or assets consisting of any amount of cash and cash equivalents and nominal other assets. We were
a shell company prior to the closing of the Merger, and as such, sales of our securities pursuant to Rule 144 are not permitted
until at least 12 months have elapsed since June 26, 2013, the date on which our Current Report on Form 8-K, reflecting our status
as a non-shell company, was filed with the SEC. Therefore, any outstanding restricted securities or any restricted securities we
may sell in the future or issue to consultants or employees in consideration for services rendered or for any other purpose will
have limited liquidity unless and until such securities are registered under the Securities Act and/or until at least June 26,
2014. Rule 144 also imposes other requirements on us and our stockholders that must be met in order to effect a sale there under.
As a result, it will be more difficult for us to raise funding to support our operations through the sale of debt or equity securities
unless we agree to register such securities under the Securities Act, which could cause us to expend significant additional time
and cash resources and which we presently have no intention to pursue. Further, it may be more difficult for us to compensate our
employees and consultants with our securities instead of cash. Our previous status as a shell company could also limit our use
of our securities to pay for any acquisitions we may seek to pursue in the future (although none are currently planned), and could
cause the value of our securities to decline. In addition, any shares held by affiliates, including shares received in any registered
offering, will be subject to certain additional requirements in order to effect a sale of such shares under Rule 144.
We do not intend to pay cash dividends on our capital
stock in the foreseeable future.
We have never declared or paid any dividends on our shares and
do not anticipate paying any such dividends in the foreseeable future. Any future payment of cash dividends would depend on our
financial condition, contractual restrictions, solvency tests imposed by applicable corporate laws, results of operations, anticipated
cash requirements and other factors and will be at the discretion of our Board of Directors. Our stockholders should not expect
that we will ever pay cash or other dividends on our outstanding capital stock.
We are at risk of securities class action litigation that
could result in substantial
costs and divert management’s attention and resources.
In the past, securities class action litigation has been brought
against companies following periods of volatility of its securities in the marketplace, particularly following a company’s
initial public offering. Due to the volatility of our stock price, we could be the target of securities litigation in the future.
Securities litigation could result in substantial costs and divert management’s attention and resources.